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Home My WebLink About1997-01-15.......:tJ In the Oflica of the Secretary Coun!:anitation District{~},,/// lio(s) ~ •• ~ 5;?-, ~l,&(3 r/J' AN 2 2 1997 DRAFT By /'. A MINUTES OF FINANCE, County Sanitation Districts of Orange County, California P.O. Box 8127 • 10844 Ellis Avenue Fountain Valley, CA 92728-8127 Telephone: (714) 962-2411 ADMINISTRATION AND HUMAN RESOURCES COMMITTEE Wednesday. January 15, 1997, 5:30 P.M. A meeting of the Finance, Administration and Human Resources Committee of the County Sanitation Districts Nos. 1, 2, 3, 5, 6, 7, 11, 13 and 14 of Orange County, California was held on Wednesday, January 15, 1997, at 5:30 p.m., at the Districts' Administrative Offices. ROLL CALL The roll was called and a quorum declared present, as follows: Committee Directors Present: George Brown, Chair John J. Collins, Joint Chair Jan Debay Thomas Saltarelli William G. Steiner Committee Directors Absent : Burnie Dunlap Peer Swan, Vice Joint Chair Other Directors Present: None Staff Present: Donald F. McIntyre, General Manager Judith A. Wilson, Assistant General Manager Ed Hodges, Director of General Services Admin. David Ludwin, Director of Engineering Bob Ooten, Director of Operations & Maintenance Mike Peterman, Director of Human Resources Gary Streed, Director of Finance Michelle Tuchman, Director of Communications Steve Kozak, Financial Manager Mike White, Controller Marc Dubois, Contracts/Purchasing Manager Chris Dahl, Information Technology Manager Mark Esquer, Engineering Supervisor Terri Josway, Safety & Emergency Response Manager Lenora Crane, Committee Secretary Others Present: Tom Woodruff, General Counsel Russ Patton, MOU Consultant APPOINTMENT OF A CHAIR PRO TEM No appointment was necessary. PUBLIC COMMENTS No comments were made. Minutes of Finance, Admir. ,ld Human Resources Committee Page 2 January 15, 1997 APPROVAL OF MINUTES It was moved, seconded and duly carried to approve the draft minutes of the December 11, 1996 meeting of the Finance, Administration and Human Resources Committee. REPORT OF THE COMMITTEE CHAIR The Chair had no report. REPORT OF THE GENERAL MANAGER The General Manager reported that as a result of Chair Collins' coaxing, we will have a good turn out for the New Directors' Orientation on Saturday. Eight new members are expected to attend, as well as the Chairs of each Committee who will be making individual presentations regarding their Committees. District 6 Chair Jan Debay will also be in attendance to introduce her new members. Some of the Directors' spouses are also expected to be in attendance. REPORT OF ASSISTANT GENERAL MANAGER-ADMINISTRATION The Assistant General Manager of Administration reported on the fire which occurred on Sunday night, at 1:30 a.m., in the Construction Inspectors' trailers. Terri Josway passed around four sets of photos taken by the Emergency Response staff of the fire damage. As a follow-up to her Fax to the Committee, Judy Wilson advised that no one was injured in the fire, and that the Fire Department's Arson Squad is investigating the incident. Their report is expected by next week. There is speculation that the fire was caused by a short in the refrigerator. The insurance adjustor is scheduled to meet with staff on Thursday, the 16th. The Districts' policy includes a deductible of $25,000. To replace the trailers with like kind, would cost approximately $400,000. This may not be the appropriate solution, since we lost As-Built drawings in the fire and a fire- safe place for storage and more suitable office quarters for staff would be desirable. The trailers were approximately 20 years old and were originally installed as temporary facilities in the mid- 1970's. Some of the issues that must be resolved with the insurance company are: Will employees' personal effects be covered; is leased equipment covered; is the cost to replace business records which were destroyed or damaged covered. REPORT OF ASSISTANT GENERAL MANAGER-OPERATIONS The Assistant General Manager of Operations had no report. REPORT OF THE DIRECTOR OF FINANCE Gary Streed advised the Committee that their Agenda is in a new format this month. A "Consent Calendar'' has been added to allow the Committee to move quickly through the items, and two additional sections have been added, "Action Items" and "Informational Presentations," to allow the Agenda to be more efficient. Mr. Streed also reported that next month's meeting will be held on February 19th, the third Wednesday of the month. In March, the Committee meeting will return to being held on the second Wednesday of the month. The deviation from the Committee's normal schedule has been due to holidays which have fallen on Wednesday for the past two months. Minutes of Finance, Adm 1nd Human Resources Committee Page3 January 15, 1997 REPORT OF THE DIRECTOR OF HUMAN RESOURCES The Director of Human Resources had no report. REPORT OF THE DIRECTOR OF GENERAL SERVICES ADMINISTRATION The Director of General Services had no report. REPORT OF THE DIRECTOR OF COMMUNICATIONS The Director of Communications reported that OCN and K-CAL had some coverage of the Districts' fire. The K-CAL news report was broadcast at 1 :30 p.m. on Monday. REPORT OF GENERAL COUNSEL General Counsel had no report. CONSENT CALENDAR ITEMS (1 -4) 1. FAHR97-01: 2. FAHR97-08: 3. FAHR97-03: 4. FAHR97-02: RECEIVE AND FILE TREASURER'S REPORT FOR THE MONTH OF DECEMBER 1996 (All Districts) RECOMMENDED ACTION: Receive and file Treasurer's Report for the month of December 1996. CERTIFICATES OF PARTICIPATION (COP) REPORT (All Districts) RECOMMENDED ACTION: Receive and file this information-only item. REPORT OF REMOVAL OF OBSOLETE INVENTORY (All Districts): RECOMMENDED ACTION: Receive and file this information-only item. EMPLOYMENT STATUS REPORT (All Districts): Total head count for December 1996 at the Districts RECOMMENDED ACTION: Receive and file this information-only item. MOTION: A motion was made and unanimously carried to approve items specified as 1 through 4 under "Consent Calendar." ACTION ITEMS 1. FAHR97-04: AMENDMENT NO. 1 TO THE CONTRACT WITH PANENERGY TRADING AND MARKET SERVICES, L.L.C., FOR PURCHASE OF NATURAL GAS, SPECIFICATION NO. P-170 (All Districts): The Operations and Maintenance Department requests that the Director of Finance be authorized to negotiate a change order and amendments to the original agreement in order to reduce projected natural gas expenses for 1996-97. Minutes of Finance, Admir . .1d Human Resources Committee Page4 January 15, 1997 3. FAHR97-05: 3. FAHR97-06: COMMITTEE DISCUSSION: Mr. Ooten advised the Committee that staff has looked at the cost to sell and the cost to buy natural gas. Though we are losing money in the exports, the actual specs of the engines require that we cannot use all of the energy produced, so we have to sell. General Manager Don McIntyre noted that the utility budget was recommended higher, however it had to be cut during the budget process. The general consensus of the Committee was that the Districts would be better off negotiating a floating rate agreement, and not enter into a fixed contract when the market is high. MOTION: 1. Authorize the Director of Finance or his designee to renegotiate, within guidelines from the FAHR Committee, the contract amount and conditions, and to execute a negotiated amendment to the original agreement with PanEnergy Trading and Market Services, L.L.C., if appropriate. 2. Authorize the appropriate budget transfers within the Operations and Maintenance budget to cover the natural gas line item. AMENDED DEFERRED COMPENSATION PLAN FOR DIRECTORS AND EMPLOYEES (All Districts): The Director of Finance and General Counsel request that they be authorized to develop an amended deferred compensation plan which will comply with the changes resulting from P. L. 104-108, the Small Business Job Protection Act, and to take the amended plan to the Joint Boards for consideration and adoption. COMMITTEE DISCUSSION: Upon inquiry from the Committee, Mr. Streed advised that our current Plan is an annuity plan which already satisfies the trustee requirement of the new legislation, and that there will be no financial impact on the Districts to place it in trust. The Districts already fund the Plan and no additional contributions are required. The only cost to the Districts to make the four required changes would be for staffs time to develop an amended Plan. MOTION: Authorize the Director of Finance and General Counsel to complete an Amended Deferred Compensation Plan for Directors and Employees in order to comply with new provisions of P.L. 104-108, and to present the Amended Plan to the Joint Boards of Directors for consideration and approval. REVISION TO MATURITY CONSTRAINT FOR THE DISTRICTS' LONG-TERM MONIES INVESTMENT PORTFOLIO (All Districts) COMMITTEE DISCUSSION: In response to the Committee, Steve Kozak advised that our money managers are following the Districts' investment guidelines and there are no deviations. PIMCO follows a very sophisticated set of internal controls and check points to make sure the purchase of any securities are done by strictly following the guidelines of the Districts' Investment Policy . He stated that staff has been to their offices to review the steps that they take. Staff and our third-party advisor, Callan Associates, also monitor their daily transactions. '~ ---\, Minutes of Finance, Adr. : and Human Resources Committee 1 Page 5 January 15, 1997 Director Steiner stated that we cannot assume from the asset managers we contract with, no matter how big they are, no matter how credible they are, are following our guidelines strictly. He wants to make sure, from staff's perspective as professionals, that the money mananger's strategies make sense and we are not blindly following PIMCO's recommendations. He also wants to be sure that staff, through their professional knowledge and expertise, know that this is the right thing to do, not from the Committee's viewpoint as laymen. Assistant General Manager Judy Wilson advised the Committee that in addition to Callan's role as a independent third-party advisor, part of their responsibility is to monitor PIMCO's adherence to the District's investment guidelines. The Districts are monitoring PIMCO in-house, as well as with an independent third-party review, and assured the Committee they can have a high level of confidence in our recommendations. MOTION: Staff recommends that pursuant to Section 16.1 of the Districts' Investment Policy, the Committee adopt a motion to recommend that the Joint Boards of Directors approve the following recommended actions. Pursuant to the requirements of California Government Code Section 53601, the Districts' external money managers may implement securities purchase authority no sooner than three months following the date of this Board action. 1. Revise Section 8.2 of the Districts' Investment Policy to read: "Mortgage-backed securities issued by an agency of the U.S. Government which are backed by pools of mortgages guaranteed by the full faith and credit of the U.S. Government, or an agency thereof. Selection of mortgage derivatives, which include interest-only payments (IOs) and principal-only payments (POs); inverse floaters, and re-remics, is hereby prohibited." 2. Revise Section 8.11 of the Districts' Investment Policy to read: "Collateralized mortgage obligations (CMOs) issued by agencies of the U.S. Government which are backed by pools of mortgages guaranteed by the full faith and credit of the U.S. Government, or an agency thereof, and asset-backed securities rated "Aaa" by Moody's and "AAA" by S&P. Selection of mortgage derivatives, which include interest-only payments (IOs) and principal-only payments (POs); inverse floaters, and re-remics, is hereby prohibited. Securities eligible for purchase under this Section 8.11 shall be issued by an issuer having a rating on its unsecured long-term debt of "A" or higher. Combined purchases of mortgage-backed securities, CMOs, and asset-backed securities, as authorized under this Section 8.11 may not exceed 20% of the total Long Term Operating Monies portfolio." 3. Revise Section 11.11 of the Districts' Investment Policy to read: "No more than 20% of the Long Term Operating Monies portfolio may be invested in a combir:,ation of mortgage-backed securities, CMOs, and asset-backed securities. Mortgage-backed securities, CMOs, and asset-backed securities may only be purchased by the Districts' external money managers with prior Board approval, and may not be purchased by the Districts' staff." Minutes of Finance, Admin. . id Human Resources Committee Page 6 January 15, 1997 4. Authorize the Districts' external money managers to purchase mortgage-backed securities, CMOs, and asset-backed securities for the Long Term Operating Monies portfolio, pursuant to the requirements of Section 11.11 of the Districts' Investment Policy. 5. Authorize the Districts' external money managers to purchase individual securities, providing the securities are permitted under Section 8.0 of the Policy, which may have a final stated maturity of more than five (5) years from the date of their purchase, pursuant to the requirements of Section 12.2.1 of the Districts' Investment Policy. INFORMATIONAL PRESENTATIONS 1. FAHR97-07: CLOSED SESSION PRELIMINARY DISCUSSION RE SEWER SERVICE FEES FOR 1997-98 (All Districts) COMMITTEE DISCUSSION: The Committee discussed the possibility of a multi-year fee schedule and Mr. Streed advised it is a consideration. Assistant General Manager Judy Wilson advised she will be attending a seminar on Proposition 218 at UCLA tomorrow to learn more about it. She stated that this item was brought before the Committee for their information and will be discussed in detail at the Board Workshop on February 1, 1997, when budget guidelines are established for next year. MOTION: Consideration of staff proposal to maintain 1996-97 Sewer Service Fees for 1997-98. The Chair reported to the Committee the need for a closed session, as authorized by Government Code Sections 54957.6 and 54956.9, to discuss and consider the items that are specified under "Closed Session" as Items Nos. (a)(1), (a)(2), (a)(3) on the published Agenda. The Committee convened in closed session at 6:30 p.m. A report of actions taken will be publicly reported at the time the approved action becomes final re Agenda Item No. (a)(1). No action was taken re Agenda Item (a)(3). At 7:20 p.m., the Committee reconvened in regular session. Re Item No. (a)(2), it was moved, seconded and duly carried that no legal action be initiated against Merrill Lynch per verbal report and recommendation of General Counsel. Confidential Minutes of the Closed Session held by the Committee have been prepared in accordance with California Government Code Section 54957 .2 and are maintained by the Board Secretary in the Official Book of Confidential Minutes of Board and Committee Closed Meetings. Minutes of Finance, Adr;,and Human Resources Committee ) Page7 January 15, 1997 OTHER BUSINESS, COMMUNICATIONS OR SUPPLEMENTAL AGENDA ITEMS, IF ANY There were none. MATTERS WHICH A DIRECTOR WOULD LIKE STAFF TO REPORT ON AT A SUBSEQUENT MEETING There were none. MATTERS WHICH A DIRECTOR MAY WISH TO PLACE ON A FUTURE AGENDA FOR ACTION AND STAFF REPORT There were none. FUTURE MEETING DATES The next Finance, Administration and Human Resources Committee Meeting is scheduled for Wednesday, February 19, 1997 at 5:30 p.m. A tour of the new Human Resources Building will take place promptly at 5:30 p.m., prior to the meeting. Dinner will be served at 5:45 p.m. ADJOURNMENT The meeting was adjourned at 7:23 p.m. Submitted by: ~~ Lenora Crane Finance, Administration and Human Resources Committee Secretary H:\WP.DTA \FIN\221 0\CRANE\FPC.MTG\FAHR.97\MINS1 .97 ST A TE OF CALIFORNIA ) ) ss. COUNTY OF ORANGE ) Pursuant to California Government Code Section 54954.2, I hereby certify that the Notice and the Agenda for the Finance, Administration and Human Resources meeting held on January 15, 1997, was duly posted for public inspection in the main lobby of the Districts' offices on January 8, 1997. IN WITNESS WHEREOF, I have hereunto set my hand this 15th day of January 1997. Penny Kyle, Secreta y 9 ea(h of the Boards of Directors of County Sanitation Districts N'os. 1, 2, , 5, 6, 7, 11, 13 & 14 of Orange County, California H:IWP.DTAIFIN\2210\CRANEIFPC.MTGIFAHR.97\JANICERTP001.97 ROLL CALL FINANCE, ADMINISTRATION AND HUMAN RESOURCES COMMITTEE MEETING DATE: January 15, 1997 COMMITTEE MEMBERS GEORGE BROWN (Chair) JOHN J. COLLINS (JC) JAN DEBAY BURNIE DUNLAP THOMAS SALTARELLI WILLIAM G. STEINER PEER A. SWAN (VJC) STAFF DON MCINTYRE, General Manager BLAKE ANDERSON, Asst. Gen'I. Mgr. -Ops. JUDITH WILSON, Asst. Gen'I. Mgr. -Admin. ED HODGES, Director of Gen'I. Srvs. Admin. DAVID LUDWIN, Director of Engineering BOB OOTEN, Director of Operations & Maintenance MIKE PETERMAN, Director of Human Resources. GARY STREED, Director of Finance MICHELLE TUCHMAN, Director of Communications NANCY WHEATLEY, Director ofTech. Srvs. STEVE KOZAK, Financial Manager MIKE WHITE, Controller GREG MATHEWS, Principal Administrative Analyst MARC DUBOIS, Contracts/Purchasing Manager LINDA EISMAN, Training Manager MARK ESQUER, Engineering Supervisor LENORA CRANE, Committee Secretary TERRI JOSWAY, Safety & Emergency Response Manager __ _ OTHERS TOM WOODRUFF, General Counsel DAN CASSIDY, MOU Consultant RUSS PATTON, MOU Consultant c: Penny Kyle L. Crane TIME: 5:30 P,M. ADJOURN: P.M. phcine: (714) 962-2411 malllng~address: RO, 80)18127 Fotlnt.ain Valley, CA 92728-812.7 street.address: 10844 EIits Avenue Fountain Valley, CA 92708-7mB Member Agencies • Oities Al'Jaheim Brea Buena Perk Oyp~r,ess Founcai~ Valley Fullel'!ton Huntingr:on Beach /r.\llne L-a Hab11a Ls Palme Loa A/em/tos Newport Beech Or,enge P/ar;en/Jla SeqGB Ana Seal Beaoh Stanton Tustirr Villa Perk Yortm Unt1a County of Orange Sanitary Dis.trlcts Qjsta Mesa GardBtJ Grove!. Midway City Water Di$i~S' /rviRe Ranch ··~ ') COUNTY '-ANITATION DISTRICTS OF •R~.11GE COUNTY, CALIFORNIA January 8, 1997 NOTICE OF MEETING FINANCE. ADMINISTRATION AND HUMAN RESOURCES COMMITTEE COUNTY SANITATION DISTRICTS NOS.1, 2, 3, 5, 6, 7, 11, 13 AND 14 OF ORANGE COUNTY, CALIFORNIA WEDNESDAY. JANUARY 15, 1997-5:30 P.M. DISTRICTS' ADMINISTRATIVE OFFICES 10844 ELLIS AVENUE FOUNTAIN VALLEY, CALIFORNIA 92708 A regular meeting of the Finance, Administration and Human Resources Committee of the Joint Boards of Directors of County Sanitation Districts Nos. 1, 2, 3, 5, 6, 7, 11, 13 and 14 of Orange County, California, will be held at the above location, time and date. A Public Wastewater and Environmental Management Agency Committed to Protecting the Environment Since 1954 January 8, 1997 FINANCE, ADMINISTRATION AND HUMAN RESOURCES COMMITTEE TENTATIVELY SCHEDULED MEETING DATES Finance, Administration and Human Resources Month Committee Meetings Joint Board Meetings January January 15, 1997 January 22, 1997 February February 19, 1997 February 26, 1997 March March 12, 1997 March 26, 1997 April April 9, 1997 April 23, 1997 May May 14, 1997 May 28, 1997 June June 11 , 1997 June 25, 1997 . July July 9, 1997 July 23, 1997 August August 13, 1997 August 27, 1997 September September 10, 1997 September 24, 1997 October October 8, 1997 October 22, 1997 November November 12, 1997 November 19, 1997 December December 10, 1997 December 17, 1997 January January 14, 1998 January 28, 1998 AGENDA REGULAR MEETING OF THE FINANCE, ADMINISTRATION AND HUMAN RESOURCES COMMITTEE COUNTY SANITATION DISTRICTS NOS. 1, 2, 3, 5, 6, 7, 11, 13 AND 14 OF ORANGE COUNTY, CALIFORNIA WEDNESDAY, JANUARY 15, 1997 AT 5:30 P.M. ROLL CALL ADMINISTRATIVE OFFICES 10844 Ellis Avenue Fountain Valley, California 92708 APPOINTMEMT OF CHAIR PRO TEM. IF NECESSARY AGENDA In accordance with the requirements of California Government Code Section 54954.2, this agenda has been posted in the main lobby of the Districts' Administrative Offices not less than 72 hours prior to the meeting date and time above. All written materials relating to each agenda item are available for public inspection in the Office of the Board Secretary. In the event any matter not listed on this agenda is proposed to be submitted to the Committee for discu·ssion and/or action, it will be done in compliance with Section 54954.2(b) as an emergency item or that there is a need to take immediate action which need came to the attention of the Committee subsequent to the posting of the agenda, or as set forth on a supplemental agenda posted in the manner as above, not less than 72 hours prior to the meeting date. PUBLIC COMMENTS All persons wishing to address the Finance, Administration and Human Resources Committee on specific agenda items or matters of general interest should do so at this time. As determined by the Chair, speakers may be deferred until the specific item is taken for discussion and remarks may be limited to five minutes. Matters of interest addressed by a member of the public and not listed on this agenda cannot have action taken by the Committee except as authorized by Section 54954.2(b). January 15, 1997 RECEIVE, FILE AND APPROVE MINUTES OF PREVIOUS MEETING Recommended Action: Receive, file and approve draft minutes of the December 11, 1996, Finance, Administration and Human Resources Committee meeting. REPORT OF COMMITTEE CHAIR REPORT OF GENERAL MANAGER REPORTOF ASSISTANT GENERAL MANAGER-ADMINISTRATION REPORT OF ASSISTANT GENERAL MANAGER -OPERATIONS REPORT OF DIRECTOR OF FINANCE REPORT OF DIRECTOR OF HUMAN RESOURCES REPORT OF DIRECTOR OF GENERAL SERVICES ADMINISTRATION REPORT OF DIRECTOR OF COMMUNICATIONS REPORT OF GENERAL COUNSEL CONSENT CALENDAR ITEMS All matters placed on the consent calendar are considered as not requiring discussion or further explanation and unless any particular item is requested to be removed from the consent calendar by a Director, staff member or member of the public in attendance, there will be no separate discussion of these items. All items on the consent calendar will be enacted by one action approving all motions, and casting a unanimous ballot for resolutions included on the consent calendar. All items removed from the consent calendar shall be considered in the regular : order of business. Members of the public who wish to remove an item from the consent calendar shall, upon recognition by the chair, state their name, address and designate by number the item to be removed from the consent calendar. The Chair will determine if any items are to be deleted from the consent calendar . ........................................................................................................................................................... _. ..................... -.................................................................... . 1. RECEIVE AND FILE TREASURER'S REPORT FOR THE MONTH OF DECEMBER 1996 (All Districts) RECOMMENDED ACTION: Receive and file Treasurer's Report for the month of December 1996. 2. CERTIFICATES OF PARTICIPATION (COP) REPORT (All Districts): (FAHR97-08) RECOMMENDED ACTION: Receive and file this information-only item. 2 ) January 15, 1997 CONSENT CALENDAR ITEMS CONTD. 3. REPORT OF REMOVAL OF OBSOLETE INVENTORY (All Districts): (FAHR97-03) RECOMMENDED ACTION: Receive and file this information-only item. 4. EMPLOYMENT STATUS REPORT (All Districts): Total head count for December 1996 at the Districts (FAHR97-02). RECOMMENDED ACTION: Receive and file the Employment Status Report. Consideration of one motion to approve all agenda items appearing on the Consent Calendar not specifically removed from same. ACTJON [TEM S 1. FAHR!1}7-04: AMENDMENT NO. 1 TO THE CONTRACT WITH PANENERGY TRADING AND MARKET SERVICES, L.L.C., FOR PURCHASE OF NATURAL GAS, SPECIFICATION NO. P-170 (All Districts): The Operations and Maintenance Department requests that the Director of Finance be authorized to negotiate a change order and amendments to the original agreement in order to reduce projected natural gas expenses for 1996-97. RECOMMENDED ACTION: 1. Authorize the Director of Finance or his designee to renegotiate, within guidelines from the FAHR Committee, the contract amount and conditions, and to execute a negotiated amendment to the original agreement with PanEnergy Trading and Market Services, L.L.C., if appropriate. 2. Authorize the appropriate budget transfers within the Operations and Maintenance budget to cover the natural gas line item. (Bob Ooten/Mark Esquer -20 minutes) 3. FAHR97-05: AMENDED DEFERRED COMPENSATION PLAN FOR DIRECTORS AND EMPLOYEES (All Districts): The Director of Finance and General Counsel request that they be authorized to develop an amended deferred compensation plan which will comply with the changes resulting from P.L. 104-108, the Small Business Job Protection Act, as described under "Additional Information," and to take the amended plan to the Joint Boards for consideration and adoption. RECOMMENDED ACTION: Authorize the Director of Finance and General Counsel to complete an Amended Deferred Compensation Plan for Directors and Employees in order to comply with new provisions of P.L. 104-108, and to present the Amended Plan to the Joint Boards of Directors for consideration and approval. (Gary Streed -10 minutes) 3 January 15, 1997 ACTION ffEMS CONTD. 3. FAHR97-06: REVISION TO MATURITY CONSTRAINT FOR THE DISTRICTS' LONG-TERM MONIES INVESTMENT PORTFOLIO (All Districts) RECOMMENDED ACTION: Staff recommends that pursuant to Section 16.1 of the Districts' Investment Policy, the Committee adopt a motion to recommend that the Joint Boards of Directors approve the following recommended actions. Pursuant to the requirements of California Government Code Section 53601, the Districts' external money managers may implement securities purchase authority no sooner than three months following the date of this Board action. 1. Revise Section 8.2 of the Districts' Investment Policy to read: "Mortgage- backed securities issued by an agency of the U.S. Government which are backed by pools of mortgages guaranteed by the full faith and credit of the U.S. Government, or an agency thereof. Selection of mortgage derivatives, which include interest-only payments (IOs) and principal-only payments (POs); inverse floaters, and re-remics, is hereby prohibited." 2. Revise Section 8.11 of the Districts' Investment Policy to read: "Collateralized mortgage obligations (CMOs) issued by agencies of the U.S. Government which are backed by pools of mortgages guaranteed by the full faith and credit of the U.S. Government, or an agency thereof, and asset-backed securities rated "Aaa" by Moody's and "AAA" by S&P. Selection of mortgage derivatives, which include interest-only payments (IOs) and principal-only payments (POs); inverse floaters, and re-remics, is hereby prohibited. Securities eligible for purchase under this Section 8.11 shall be issued by an issuer having a rating on its unsecured long-term debt of "A" or higher. Combined purchases of mortgage-backed securities, CMOs, and asset-backed securities, as authorized under this Section 8.11 may not exceed 20% of the total Long Term Operating Monies portfolio." 3. Revise Section 11.11 of the Districts' Investment Policy to read: "No more than 20% of the Long Term Operating Monies portfolio may be invested in a combination of mortgage-backed securities, CMOs, and asset-backed securities. Mortgage-backed securities, CMOs, and asset-backed securities may only be purchased by the Districts' external money managers with prior Board approval, and may not be purchased by the Districts' staff." 4. Authorize the Districts' external money managers to purchase mortgage- backed securities, CMOs, and asset-backed securities for the Long Term Operating Monies portfolio, pursuant to the requirements of Section 11.11 of the Districts' Investment Policy. 5. Authorize the Districts' external money managers to purchase individual securities, providing the securities are permitted under Section 8.0 of the Policy, which may have a final stated maturity of more than five (5) years from the date of their purchase, pursuant to the requirements of Section 12.2.1 of the Districts' Investment Policy. (Steve Kozak-10 minutes) 4 . r January 15, 1997 INFORMATIONAL PRESENTATIONS 1. PRELIMINARY DISCUSSION RE SEWER SERVICE FEES FOR 1997-98 (All Districts): (FAHR97-07) RECOMMENDED ACTION: Consideration of staff proposal to maintain 1996-97 Sewer Service Fees for 1997-98. (Gary Streed -5 minutes) CLOSED SESSION During the course of conducting the business set forth on this agenda as a regular meeting of the Committee, the Chair may convene the Committee in closed session to consider matters of pending real estate negotiations, pending or potential litigation, or personnel matters, pursuant to Government Code Sections 54956.8, 54956.9, 54957 or 54957.6, as noted. Reports relating to (a) purchase and sale of real property; (b) matters of pending or potential litigation; (c) employee actions or negotiations with employee representatives; or which are exempt from public disclosure under the California Public Records Act, may be reviewed by the Committee during a permitted closed session and are not available for public inspection. At such time as final actions are taken by the Committee on any of these subjects, the minutes will reflect all required disclosures of information. (a) Convene in closed session. (1) Confer with Districts' Negotiator re pending MOU Labor Negotiations (Government Code Section 54957.6). (2) Confer with Districts' General Counsel re possible legal actions relative to Orange County Bankruptcy (Government Code Section 54956.9(c). (3) Confer with Districts' Management and General Counsel re appeals of termination of employees from investigation (Government Code Section 54956.9(b)(1)(2). (b) Reconvene in regular session. (c) Consideration of action, if any, on matters considered in closed session. OTHER BUSINESS, COMMUNICATl'ONS OR SUPPLEMENTAL AGENDA ITEMS, IF ANY MATTERS WHICH A DIRECTOR WOULD LIKE STAFF TO REPORT ON AT A SUBSEQUENT MEETING MATTE.RS WHICH A DIRECTOR MAY W,ISH IO PLACE ON A FUTURE AGENDA FOR ACTION AND STAFF REPORT 5 January 15, 1997 FUTURE MEETING DATES The next Finance, Administration and Human Resources Committee Meeting is scheduled for February 19, 1997. NOTICE TO COMMITTEE MEMBERS If you have any questions on the agenda or wish to place any items on the agenda, Committee members should contact the Committee Chair or Secretary ten days in advance of the Committee meeting. Committee Chair: Comm. Secretary: Asst. Comm. Secretary: le George Brown Lenora Crane Frankie Woodside H:\WP.DTAIFIN\221 0\CRANE\FPC.MTGIFAHR.971AGENDA1 .97 6 (310) 431-2185 (714) 962-2411, Ext. 2501 (714) 962-3954 (FAX) (714) 962-2411, Ext. 3001 -, OMTS: PDC: FAHR: 01/15/97 EXEC: STEER: JT.BDS: 01 /22/97 ALL AGENDA WORDING AND RECOMMENDED ACTION(S): Agenda Wording: AGENC ITEM TRANSMITTAL CONTACT FOR INFORMATION 2210, Gary G. Streed, Ext. 2500 Division No., Name, and Extension RECEIVE AND FILE DRAFT FINANCE, ADMINISTRATION AND HUMAN RESOURCES COMMITTEE MINUTES FOR THE MEETING HELD DECEMBER 11, 1996 (All Districts) Recommended Action(s): 1. Receive and file draft Finance, Administration and Human Resources Committee minutes for the meeting held December 11, 1996. CEQA REVIEW: Project is Exempt: NOT APPLICABLE Date Notice of Exemption Filed: Negative Declaration Approved on Final EIR Approved on_ and Notice of Determination filed on_ CURRENT BUDGET/COST INFORMATION TOTAL BUDGETED AMT.: N/A SOURCE: CORF JO DISTRICTS Schedule/Line Items: AMOUNT OF TRANSFER: Schedule/Line Item: TOTAL PROJECT BUDGET INFORMATION First Year in Budget: Master Plan Estimate: Year of First Costs: THIS AITNENDOR/PROJECT COST INFORMATION CURRENT YEAR BUDGET AMOUNT NIA ORIGINAL BUDGET TOTAL ORIGINAL BID, PO, CONTRACT AMOUNT WILL PROJECT REQUIRE ADDITIONAL PERSONNEL? NO If YES, stale number: _ Permanent _ Limited Term DATE OF MOST RECENT BOARD ACTION ON THIS SPECIFIC ITEM: CURRENT YEAR- TO-DATE EXPENDITURES NIA PREVIOUS BUDGET CHANGES CHANGE ORDERS, FUNDS PREY. APPROVED YEAR-TO-DATE BUDGET BALANCE N/A BUDGET CHANGE THISAIT AMOUNT REQUESTED THIS AIT REVISED BUDGET TOTAL (Total Budget plus Transfers) N/A REVISED TOTAL PROJECT BUDGET $0.00 AMENDED PROJECT AMOUNT $0.00 REQUIRES BOARD POLICY ACTION? NOT APPLICABLE lfYES, explain in ADDITIONAL INFORMATION section Revised 12/1196 H:\WP.DTA\FIN\2210\CRANE\FPC.MTG\FAHR.97\AITMIN12.97 Page 1 of 2 CONCURRENCES: Date Si ure Date Department Head (Or Designee) ~ U)~,1,. i~/19/11& Sig re Date Assistant General Manager (Or Designee) ADDITIONAL INFORMATION (Background and/or Summary) ATTACHMENTS TO f . lDA (List) To Committee: ToJt. Bds.: 1. Draft Minutes of FAHR Committee Meeting held 12-11-96. 1. Attached is a draft of the Finance, Administration and Human Resources meeting minutes of December 11, 1996. These minues were submitted to the Joint Boards at their December 18, 1996 meeting. GGS:lc c: Department Head AGM-Administration AGM-Operations General Manager Reviled 12/1196 H:\WP.DTA\FIN\2210\CRANE\FPC.MTG\FAHR.97\AITMIN12.97 Page 2 of2 REVISED DRAFT MINUTES OF FINANCE, County Sanitation Districts of Orange County, California P.O. Box 8127 • 10844 Ellis Avenue Fountain Valley, CA 92728-8127 Telephone: (714) 962-2411 ADMINISTRATION AND HUMAN RESOURCES COMMITTEE Wednesday, December 11, 1996, 5:30 P.M. A meeting of the Finance, Administration and Human Resources Committee of the County Sanitation Districts Nos. 1, 2, 3, 5, 6, 7, 11, 13 and 14 of Orange County, California was held on December 11, 1996 at 5:30 p.m., at the Districts' Administrative Offices. ROLL CALL The roll was called and a quorum declared present, as follows: Committee Directors Present: George Brown, Chair John J. Collins, Joint Chair Jan Debay Burnie Dunlap Thomas Saltarelli Roger R. Stanton, Vice Chair William G. Steiner Peer Swan, Vice Joint Chair Committee Directors Absent : John C. Cox, Jr. (PJC) James Flora John M. Gullixson Wally Linn Other Directors Present: Eva Miner Bradford Staff Present: Donald F. McIntyre, General Manager Judith A. Wilson, Assistant General Manager Ed Hodges, Director of General Services Admin. Mike Peterman, Director of Human Resources Gary Streed, Director of Finance Michelle Tuchman, Director of Communications Greg Mathews, Principal Admin. Analyst Steve Kozak, Financial Manager Mike White, Controller Chris Dahl, Information Technology Manager Rob Thompson, Manager Plant Operations Lenora Crane, Committee Secretary Others Present: Tom Woodruff, General Counsel Russ Patton, MOU Consultant APPOINTMENT OF A CHAIR PRO TEM No appointment was necessary. PUBLIC COMMENTS No comments were made. APPROVAL OF MINUTES It was moved, seconded and duly carried to approve the draft minutes of the November 13, 1996 meeting of the Finance, Administration and Human Resources Committee. Minutes of Finance, Admin. .:I Human Resources Committee Page 2 December 11, 1996 REPORT OF THE COMMITTEE CHAIR The Chair had no report. REPORT OF THE GENERAL MANAGER The General Manager had no report. REPORT OF ASSISTANT GENERAL MANAGER -ADMINISTRATION 0 The Assistant General Manager of Administration had no report. REPORT OF ASSISTANT GENERAL MANAGER -OPERATIONS The Assistant General Manager of Operations had no report. REPORT OF THE DIRECTOR OF FINANCE Gary Streed reported that the Districts' daily COP rates were included in the agenda package mailed to the Committee. Referring to the FAHR Calendar, Mr. Streed advised that at the last meeting, the Directors approved moving the January meeting to the 15th, because the holiday will back up the other Committees' meetings. There was discussion about meeting at 6:00 p.m. on the 15th, due to conflicts with two other tentatively scheduled meetings. Those meetings have been canceled, therefore, the FAHR meeting will be at 5:30 p.m. on January 15. Mr. Streed further advised that the February meeting falls on a holiday and stated it has been tentatively moved to February 19, the third Wednesday of the month. REPORT OF THE DIRECTOR OF HUMAN RESOURCES The Director of Human Resources had no report. REPORT OF THE DIRECTOR OF GENERAL SERVICES ADMINISTRATION The Director of General Services had no report. REPORT OF THE DIRECTOR OF COMMUNICATIONS The Director of Communication reported on an article that appeared in Sunday's Orange County Register, on page one, about the Districts' recent workplace investigation. As a result of that article, U.S.A. Today quoted one sentence from the Register article in their Monday paper. Ms. Tuchman announced that the Rate Advisory Committee will be holding their thirc:I meeting at the Districts on Thursday, December 12, 1996, from 9 a.m. to 12 p.m. in the Board Room. Also, the Orange County Council of Governments will hold their second meeting at the Districts in the afternoon of the 12th from 1 p.m. to 3 p.m. Minutes of Finance, Admir ~1d Human Resources Committee Page 3 December 11, 1996 REPORT OF GENERAL COUNSEL General Counsel passed out a memo and reported on the Implementation of Proposition No. 218. In his review of the proposition, Mr. Woodruff found 218 is not very clearly written and much of it is not related to the Districts. However, Mr. Woodruff concluded from his review that sewer service is clearly property related. Therefore, those provisions of 218 dealing with property related services will apply to the Districts. Mr. Woodruff advised that a vote of the people is not required whenever sewer rates are raised. However, we must comply with all of the procedural requirements, many of which the Districts already do. Notification will have to be made to all property owners whenever sewer service fees are raised. The cost of these mailings is estimated to be anywhere from $250,000 to $300,000. Mr. Woodruff addressed the impact of 218 on Capital Facilities Connection charges, which is a combination of Capital Facilities and Connection charges. INTRODUCTION BY JOINT CHAIR COLLINS Joint Chair Collins introduced and welcomed Eva Miner Bradford, Council Member from the City of La Palma, as a new member on the Board, and who served, as a valued member, for a few years on the Districts' Board of Directors in the past. DISCUSSION ITEMS (Nos. 1-5) 1. FAHR96-73: 2. FAHR96-74: RECEIVE AND FILE TREASURER'S REPORT FOR THE MONTH OF NOVEMBER 1996 (All Districts) COMMITTEE DISCUSSION: The Director of Finance provided the Committee with a hand-out report for the month of November in compliance with the Districts' policy. He noted that a few cash accounts have been separated out, and the performance of the deferred compensation fund's various portfolios has been added. There are changes in the deferred compensation law which will be addressed at the next Committee meeting. MOTION: It was moved, seconded and duly carried to receive and fjle the Treasurer's Report for the month of November 1996, and forward to the Joint Boards. SELECTION OF INSURANCE BROKER(S) OF RECORD FOR THE DISTRICTS' PROPERTY/CASUAL TY/LIABILITY AND EMPLOYEE MEDICAL INSURANCE PROGRAMS (All Districts) COMMITTEE DISCUSSION: Steve Kozak reported on the Property/Casualty/Liability broker of record recommendation. Mr. Kozak summarized the RFP process. In response to the Committee, Mr. Kozak advised that John Burnham & Company would be the Districts' second choice. Mike Peterman reported on the Employee Medical Insurance Program's broker of record recommendation. Discussion took place regarding the performance of Robert F. Driver Company as the Districts' past health insurance broker of record. It was noted that Drivers' San Diego office Minutes of Finance, Admin. ti Human Resources Committee Page4 December 11, 1996 3. FAHR96-75: handled the Districts' health insurance in the past, and did not perform well in that area. However, their liability insurance office in Irvine does an outstanding job. Burnham Benefits Insurance Services was recommended as the Districts' Employee Medical/Health Care Insurance Broker of Record. Mr. Peterman advised that their representative has direct experience with Metra Health, the Districts' Health Insurance Provider, with whom we have a rate guarantee for three years. We have had problems with Metra Health also, and it will be a significant benefit to have a company that knows the inner workings of Metra Health. The Committee requested a separate vote for each of the broker of record programs due to the level of concern by the Committee regarding Robert F. Driver's past performance as the Districts' Medical Insurance Broker of Record. MOTION: It was moved, seconded and duly carried with four (4} Ayes and three (3} Nays, to recommend the Joint Boards approve the selection of Robert F. Driver Associates to serve as the Districts' Property/Casualty/Liability Insurance Broker of Record for a three-year period commencing on January 1, 1997, with the Districts' option to renew for an additional two years thereafter; MOTION: It was moved, seconded and unanimously carried to recommend the Joint Boards approve the selection of Burnham Benefits Insurance Services to serve as the Districts' Employee Medical/Health Care Insurance Broker of Record for a three-year period commencing on January 1, 1997, with the Districts' option to renew for an additional two years thereafter. STATE OF THE INFORMATION TECHNOLOGY DIVISION (All Districts} COMMITTEE DISCUSSION: Information Technology Director Ed Hodges introduced Chris Dahl, Information Technology Manager, and Rob Thompson, Manager of Plant Operations. Mr. Dahl gave a slide presentation of the internal audit findings performed by Greg Mathews, Principal Administrative Analyst, and discussed actions taken as a result of the audit such as organizational changes to the Division and implementation of new programs, policies and procedures. Upon conclusion of Mr. Dahl's presentation, the Committee commended Mr. Dahl for an excellent presentation. Director Dunlap expressed the Committee's appreciation that Information Technology is not automating the plants for the sake of automation, but for the bottom line of improving the Districts' services and ability to be more productive. Manpower requirements at the Booster Station have been reduced by five positions due to automation. Bob Ooten will have the station manned during this winter's peak flows to be sure it is working satisfactorily. The elimination of these positions moves the Districts ahead a little faster than anticipated at reducing the number of FTEs. . • Minutes of Finance, Admin ld Human Resources Committee Page 5 December 11, 1996 4. FAHR96-76: 5. FAHR96-77: CLOSED SESSION MOTION: It was moved, seconded and duly carried to receive and file this information-only item. EMPLOYMENT STATUS REPORT (All Districts): Total head count for November 1996 at the Districts. COMMITTEE DISCUSSION: Mr. Peterman advised that the total FTEs is 559.75, with a total number of people of 570. There are 54 vacancies. Don McIntyre advised that most of the 54 vacancies will not be filled, because it would not be logical to fill them when we are looking at a 15% staffing reduction. He advised we will use temporary hires, if necessary. Judy Wilson reported that in the O&M area where we lost a number of employees, we are looking at the application of plant automation, may go to a six-to-six work schedule, and may even consider contracting out collections for small lines. Mike Peterman advised a head count report will be brought to the Committee each month. In response to Director Swan, Don McIntyre advised that the Districts is developing a five-year staffing plan which is expected to be completed next quarter, and will be brought before the Committee when completed. MOTION: It was moved, seconded and duly carried to receive and file the Employment Status Report. REAL PROPERTY LEASE AGREEMENT WITH VILLAGE NURSERIES L.P., AT PLANT NO. 1, SPECIFICATION NO. L-018 (All Districts) COMMITTEE DISCUSSION: Ed Hodges, General Services Administration Director, reported on this item. In response to Committee questions, he advised the lease site in not in a desirable location, which accounts for the lower than market income per acre. The agreement does contain a good liability clause. MOTION: It was moved, seconded and duly carried to: 1) Recommend the Joint Boards authorize execution of the Real Property Lease Agreement with Village Nurseries at a lease rate favorable to the Districts; 2) Directed staff to review Village Nurseries' financials in making a lease rate decision; and 3) Include in the Lease Agreement a 30-day cancellation clause with cause, and a 6-months cancellation clause for any reason. The Chair reported to the Committee the need for a closed session, as authorized by Government Code Sections 54957.6, to discuss and consider the item that is specified under "Closed Session" as Item (a)(1) on the published Agenda. The Committee convened in Closed Session at 7:00 p.m. Minutes of Finance, Admin. ] Human Resources Committee Page6 December 11, 1996 Confidential Minutes of the closed session held by the Committee have been prepared in accordance with California Government Code Section 54957 .2 and are maintained by the Board Secretary in the Official Book of Confidential Minutes of Board and Committee Closed Meetings. A report of actions taken will be publicly reported at the time the approved action becomes final re Agenda Items listed under Closed Session as item (a)(1). At 7:30 p.m., the Committee reconvened in regular session. OTHER BUSfNESS. COMMUNICATIONS OR SUPPLEMENTAL AGENDA ITEMS. IF ANY There were none. MATTERS WHICH A DIRECTOR WOULD LIKE STAFF TO REPORT ON AT A SUBSEQUENT MEETING There were none. MATTERS WHICH A DIRECTOR MAY WISH TO PLACE ON A FUTURE AGENDA FOR ACTION AND STAFF REPORT There were none. FUTURE MEETING DATES The next Finance, Administration and Human Resources Committee Meeting is scheduled for Wednesday, January 15, 1997, at 5:30 p.m. ADJOURNMENT The meeting was adjourned at 7:32 p.m. Submitted by: ~~ Lenora Crane Finance, Administration and Human Resources Committee Secretary H:\WP.DTA \FIN\2210\CRANE\FPC.MTG\FAHR.96\1996.MIN\MFAHR12.96 OMTS: PDC: FAHR: 01/15/97 EXEC: STEER: JT.BDS: 01 /22/97 ALL AGENDA WORDING AND RECOMMENDED ACTION(S): Agenda Wording: AGENL ITEM TRANSMITTAL CONTACT FOR INFORMATION 2210, Gary G. Streed, Ext. 2500 Division No., Name, and Extension RECEIVE AND FILE TREASURER'S REPORT FOR THE MONTH OF DECEMBER 1996 (All Districts) Recommended Action(s): 1. Receive and file Treasurer's Report for the month of December 1996. CEQA REVIEW: Project is Exempt: NOT APPLICABLE Date Notice of Exemption Filed: Negative Declaration Approved on Final EIR Approved on_ and Notice of Determination filed on_ CURRENT BUDGET/COST INFORMATION TOTAL BUDGETED AMT.: N/A SOURCE: CORF JO DISTRICTS Schedule/Line Items: AMOUNT OF TRANSFER: Schedule/Line Item: TOTAL PROJECT BUDGET INFORMATION First Year in Budget: Master Plan Estimate: Year of First Costs: THIS AITNENDOR/PROJECT COST INFORMATION CURRENT YEAR BUDGET AMOUNT N/A ORIGINAL BUDGET TOTAL ORIGINAL BID, PO, CONTRACT AMOUNT WILL PROJECT REQUIRE ADDITIONAL PERSONNEL? NO If YES, state number: _ Permanent _ Limited Term Revised 12/1196 H:\WP.DTA \AGENDA\FORMS\AIT-FORM. DATE OF MOST RECENT BOARD ACTION ON THIS SPECIFIC ITEM: CURRENT YEAR- TO-DATE EXPENDITURES N/A PREVIOUS BUDGET CHANGES CHANGE ORDERS, FUNDS PREV. APPROVED YEAR-TO-DATE BUDGET BALANCE N/A BUDGET CHANGE THISAIT AMOUNT REQUESTED THIS AIT REQUIRES BOARD POLICY ACTION? NO REVISED BUDGET TOTAL (Total Budget plus Transfers) N/A REVISED TOTAL PROJECT BUDGET $0.00 AMENDED PROJECT AMOUNT $0.00 If YES, explain in ADDITIONAL INFORMATION section Page 1 of 2 CSDOC e P.O. Box 8127 e Fountain Valley. CA 92728-8127 e (714) 962-2411 CONCURRENCES: ATTACHMENTS TO/ IDA (List) To Committee: 1. Date ure Date ToJt. Bds.: 1. apartment ead (Or Designee) ~---.;,,, w~ w-, ii, '1 Ir e. Signatur Date Assistant General Manager (Or Designee) ADDITIONAL INFORMATION (Background and/or Summary) The Districts have used Pacific Investment Management Co . (PIMCO), as our professional external money manager, and Mellon Trust as our third-party custodian since September 1995. The December report will be available at the meeting in accordance with the Board-approved Investment Policy, and in conformance to the Government Code requirement to have monthly reports reviewed within 30 days of month end. Quarterly presentations are made by PIMCO and/or our third-party independent consultant, Callan Associates, when requested by the Committee. The Districts' investments are in compliance with the Districts' adopted Investment Policy, and the California Government Code. In addition, sufficient funds are available for the Districts to meet its operating expenditure requirements for the next six months. GGS:lc c: Department Head AGM-Administration A GM-Operations General Manager Revised 12/1196 H:\WP .DTA\AGENDA\FORMS\AIT-FORM. Page 2 of2 OMTS: PDC: FAHR: 01/15/97 EXEC: STEER: JT.BDS: 01 '22/97 ALL AGENDA WORDING AND RECOMMENDED ACTION(S): Agenda Wording: AGEN~ ITEM TRANSMITTAL CONTACT FOR INFORMATION 2210, Gary G. Streed, Ext. 2500 Division No., Name, and Extension RECEIVE AND FILE REPORT OF DIRECTOR OF FINANCE (All Districts) Recommended Action(s): 1. Receive and file this information-only Report of Director of Finance. CEQA REVIEW: Project is Exempt: NOT APPLICABLE Date Notice of Exemption Filed: Negative Declaration Approved on Final EIR Approved on_ and Notice of Determination filed on_ CURRENT BUDGET/COST INFORMATION TOTAL BUDGETED AMT.: N/A SOURCE: CORF JO DISTRICTS Schedule/Line Items: AMOUNT OF TRANSFER: Schedule/Line Item: TOTAL PROJECT BUDGET INFORMATION First Year in Budget: Master Plan Estimate: Year of First Costs: THIS AITNENDOR/PROJECT COST INFORMATION CURRENT YEAR BUDGET AMOUNT N/A ORIGINAL BUDGET TOTAL ORIGINAL BID, PO, CONTRACT AMOUNT WILL PROJECT REQUIRE ADDITIONAL PERSONNEL? NO If YES, state number: _ Permanent _ Limited Term Revised 12/1196 H:\WP .DTA\FIN\221 0\CRANE\FPC.MTG\FAHR.97\DOFAIT1 .97 DATE OF MOST RECENT BOARD ACTION ON THIS SPECIFIC ITEM: CURRENT YEAR- TO-DATE EXPENDITURES N/A PREVIOUS BUDGET CHANGES CHANGE ORDERS, FUNDS PREY. APPROVED YEAR-TO-DATE BUDGET BALANCE NIA BUDGET CHANGE THIS AIT AMOUNT REQUESTED THIS AIT REVISED BUDGET TOTAL (Total Budget plus Transfers) NIA REVISED TOTAL PROJECT BUDGET $0.00 AMENDED PROJECT AMOUNT $0.00 REQUIRES BOARD POLICY ACTION? NOT APPLICABLE If YES, explain in ADDITIONAL INFORMATION section Page 1 of 2 CONCURRENCES: ATTACHMENTS TO 'jNDA (List) To Committee: 1. Graph -COP Rate History Report. Date d f~/9 ~ Date ToJt. Bds.: 1. ,2.,/,1/q1o Date ADDITIONAL INFORMATION (Background and/or Summary) Since June 1995, the daily rate COP program remarketing agents have been PaineWebber for the Series "A" and the 1993 Refunding COPs, and J.P. Morgan for the Series "C" COPs. Most fixed rate Series "B" COPs have been refunded and the 1992 Refunding COPs have always been remarketed by PaineWebber in a weekly mode. The attached graph shows the variable interest rates on each of the daily rate COPs since the last report, and the effective fixed rate for the two refunding issues which are covered by an interest rate exchange agreement commonly called a "swap." Variable rates historically rise at the end of each calendar quarter, and especially at year-end, because of business taxes and statements. The rates decline to prior levels immediately in the following month. Staff will maintain our continuous rate monitoring and ongoing dialog with the remarketing agents and rating agencies to keep the Committee fully informed about developments in the program as they occur and at each meeting. GGS:lc c: Department Head A GM-Administration A GM-Operations General Manager Revised 12/1198 H:\WP .DTA\FIN\2210\CRANE\FPC.MTG\FAHR.97\DOFAIT1 .97 Page 2 of2 ~ "ti C CD "O ~ ~ DI RATE(%) CD z m a. )> 0 -"' c,J .I>, 01 9> t:r z C) C) C) 0 0 C) 0 '< () 0 0 0 0 0 0 0 .,, m 3-Apr-96 ' 5· tG DI "' ::, -10-Apr-96 0 0 SD ~ -0 17-Apr-96 ~ ~ -.j i 24-Apr-96 · -(D 1-May-96 ~ -i I )> m :I: 8-May-96 I s: cii I :-i 15-May-96 : C 0 22-May-96 ,: () 29-May-96 t 5-Jun-96 12-Jun-96 "ti DI 19-Jun-96 5· (I) ~ 26-Jun-96 -C, (I) t:r 0 t:r 3-Jul-96 · (I) ~ -0 ' 10-Jul-96 -. + $? 17-Jul-96 24-Jul-96 -t c.... m :u 31-Jul-96 :::c s: -0 7-Aug-96 • "" ca DI -t ::, 14-Aug-96 0 + 21-Aug-96 ~ 28-Aug-96 -:::c )> 4-Sep-96 • m G) -0 en 11-Sep-96 · 0 :E DI "O 18-Sep-96 -· :::c -t 25-Sep-96 f 2-Oct-96 en 9-Oct-96 0 0 G> 16-Oct-96 (I) ::, en 23-Oct-96 ---:E DI "O 30-Oct-96 - 6-Nov-96 ·•· 13-Nov-96 20-Nov-96 - 27-Nov-96 - 4-Dec-96 · 11-Dec-96 18-Dec-96 - 25-Dec-96 2-Jan-97 i OMTS: PDC: FAHR: 01 /15/97 EXEC: STEER: JT.BDS: ALL AGENDA WORDING AND RECOMMENDED ACTION(S): Agenda Wording: AGENDA ITEM TRANSMITTAL 2230, Marc Dubois, Ext. 2650 Division No., Name, and Extension PROGRESS REPORT ON REMOVAL OF OBSOLETE INVENTORY (All Districts) Recommended Action(s): Receive and file this information-only report of Contracts/Purchasing Manager CEQA REVIEW: Project is Exempt: NOT APPLICABLE Date Notice of Exemption Filed: Negative Declaration Approved on Final EIR Approved on_ and Notice of Determination filed on_ BUDGET INFORMATION TOTAL BUDGETED AMT.: N/A SOURCE: CORF JO DISTRICTS Schedule/Line Item: AMOUNT OF TRANSFER: Schedule/Line Item: AIT/PROJECT COST INFORMATION CURRENT YEAR BUDGET AMOUNT N/A ORIGINAL BID, PO, CONTRACT AMOUNT N/A WILL PROJECT REQUIRE ADDITIONAL PERSONNEL? NO If YES, state number: _ Permanent Limited Term r~ ,~ r3 7ft, ature Date apartment ad (Or Designee) {;j.46lh (A),is,.. i ature Assistant General Manager (Or Designee) DATE OF MOST RECENT BOARD ACTION ON THIS SPECIFIC ITEM: N/A CURRENT YEAR- TO-DATE EXPENDITURES N/A CHANGE ORDERS, FUNDS PREV. APPROVED N/A YEAR-TO-DATE BUDGET BALANCE N/A AMOUNT REQUESTED THIS AIT N/A REQUIRES BOARD POLICY ACTION? NO REVISED BUDGET TOTAL (Total Budget plus Transfers) N/A AMENDED PROJECT AMOUNT N/A If YES, explain in ADDITIONAL INFORMATION section ATTACHMENTS TO AGENDA (List) To Committee: 1. Report on Surplus To Jt. Bds.: 1. CS DOC e P .0. Box 8127 e Fountain Valley, CA 92728-8127 e (714) 962-2411 ADDITIONAL INFORMATION (Background and/or Summary) In the past year, the Districts has aggressively pursued the identification, appropriate removal and disposition of surplus capital equipment and inventory parts. The Districts produces several categories of surplus that are consistent and continuous. As technology changes our treatment processes and equipment requirements, our on-hand inventory of repair parts becomes obsolete. Heavy equipment and vehicles (trucks, automobiles, etc.) also become surplus based upon age and maintenance and repair. The Purchasing and Warehouse Division is currently working on several areas of surplus reduction : 1) Plant Nos. 1 and 2 warehouse inventory identified as obsolete/inactive, 2) obsolete natural gas engines, 3) materials and equipment stored in the Districts' tunnels, 4) vehicles and heavy equipment, 5) surplus equipment resulting from completed projects, and 6) surplus molecular microbiology laboratory equipment. The inventory reduction program appears to be working. The following table shows the value of inventoried items over the past two years; a decrease of 21 %: June 30, 1995 June 30, 1996 October 31, 1996 $4,602,000 3,786,000 3,603,000 The Purchasing and Warehouse Division has worked closely with the Operations/Maintenance and G.S.A. Departments to identify parts in our current inventory system that have "no value" in supporting current technologies utilized at both plants. Since April, the Departments have identified approximately $454,193 of book value obsolete parts and materials in b0th warehouses. A substantial amount of these items were procured in the mid 1970s and early 1980s which significantly reduces the current market value and the opportunity to recover the initial investment. The least costly and most efficient method of controlling surplus is to eliminate it at the source. That is why cost reduction programs that eliminate surpluses before they occur are so profitable. Beginning May 1, 1996, the Purchasing and Warehouse Division established a new policy pertaining to adding new inventory items. The new policy requires thorough justification providing a credible reason for adding the part(s) into inventory. The final approval will be at the discretion of the Contracts/Purchasing Manager with concurrence of the appropriate Department Head. The policy was implemented based upon several factors: 1) as of July 1, 1995, 3,496 items had been inactive for five or more years, 2) during the surplus reduction period, 1,282 items ($454,193) were identified as obsolete, and 3) the policy compliments the on-going inventory/surplus reduction effort which allows warehouse staff to increase customer service levels, maximize our inventory investment, and allow our on-hand inventories to match our true rate of consumption. The Purchasing and Warehouse Division is currently investigati ng inventory/surplus stored in Districts' underground tunnels at Plant No. 2. The Operations and Maintenance and Engineering Departments are working in concert with Purchasing and the Warehouses to appropriately identify surplus/obsolete equipment in the tunnels and select the most profitable method of disposal. This process, based upon its magnitude, should be concluded by April of 1997. Several methods exist to dispose of surplus equipment profitably, however; reassignment and utilization within the organization is always the most profitable form of surplus disposition. This reinvestment method realizes 100% of the original cost, whereas selling to dealers and brokers typically yields far less. On July 15, 1996, the Purchasing and Warehouse Division introduced a pilot program called "Garage Sale" which was designed to reintroduce Districts' surplus back into all Districts' operations. The intent was to establish a formalized investment recovery program that maximizes our return on our original investment and provides a mechanism for staff to obtain quality, functional equipment that may otherwise be fiscally unattainable. It shall be noted, all "released" surplus is exclusively for Districts' operations and remains on- site. The Purchasing and Warehouse Division distributes monthly a listing of available surplus equipment that is in good working condition. Since July, the "Garage Sale" program has been very successful and will continue to expand its functionality. Soon Districts' staff will be able to view from their computers all available surplus equipment for their immediate utilization. MDD:cm c: General Manager AGM-Administration AGM-Operations Department Head H:\WP.DTA \FINl2230\DUBOIS\AIT\FAHR1-15.97 Revision: 12/13/96 Page 2 of2 ' r For Bd. Sec. ur--.q!!]y • COMM. INFO. ITEM • COMM. ACTION ITEM • JT. BDS. CONSENT • JT. BDS. DISCUSSION (NON-CONSENT) • PUBLIC HEARING ____ JT. BDS. MEETING DATE ____ JT. BDS. AGENDA ITEM NO. AGEN~ ITEM TRANSMITTAL MEETING DATE OMTS: COMM. ID. NO. DISTRICT NO. CONTACT FOR INFORMATION /}'½'J.J (Initials of Originator) PDC: FAHR: 1 /15/97 EXEC: STEER: JT.BDS: OMTS. ___ _ PDC _ __..-,,------- FAHR j7-0-. EXEC ___ _ All STEER ___ _ AGENDA WORDING AND RECOMMENDED ACTION(S): Agenda Wording: 2520, Mike Peterman, Ext. 2105 Division No., Name, and Extension EMPLOYMENT STATUS REPORT: Total headcount at the Districts as of January 3, 1997. Recommended Action(s}: Receive and file the Employment Status Report. CEQA REVIEW: Project is Exempt: NOT APPLICABLE Date Notice of Exemption Filed: Negative Declaration Approved on Final EIR Approved on_ and Notice of Determination filed on_ BUDGET INFORMATION TOTAL BUDGETED AMT.: $ NIA SOURCE: CORF JO DISTRICTS Schedule/Line Item: AMOUNT OF TRANSFER: Schedule/Line Item: AIT/PROJECT COST INFORMATION CURRENT YEAR BUDGET AMOUNT N/A ORIGINAL BID, PO,CONTRACT AMOUNT NIA WILL PROJECT REQUIRE ADDITIONAL PERSONNEL? NO If YES, state number: _ Permanent _ Limited Term CONCURRENCES: Signature Date ~ ~ivi~ion ranager (~r ~~e} f~ W{·~ -j ---f,{ie_~~v';~ I -8 -~ 7 Signature Date Department Head (Or Designee) ~?,, uii/4 w-I/ 'i' /q 7 ~ture Date Assistant General Manager (Or Designee) DATE OF MOST RECENT BOARD ACTION ON THIS SPECIFIC ITEM: N/A CURRENT YEAR- TO-DATE EXPENDITURES N/A CHANGE ORDERS, FUNDS PREV. APPROVED N/A YEAR-TO-DATE BUDGET BALANCE N/A AMOUNT REQUESTED THIS AIT N/A REVISED BUDGET TOTAL (Total Budget plus Transfers) N/A AMENDED PROJECT AMOUNT N/A REQUIRES BOARD POLICY ACTION? NOT APPLICABLE If YES, explain in ADDITIONAL INFORMATION section ATTACHMENTS TO AGENDA (List) To Committee: 1. January 3, 1997 Employment Status Report. To Jt. Bds.: 1. ---- OMTscnMM. PDCCOMM. FAHRCOMM. JOINT BOARDS Meeting Date: ~ ------Approved: Amended: • Forwarded to: l ' -~ ADDITIONAL INFORMATION (Background and/or Summary) The Districts have a Full-time equivalent (FTE) headcount of 555.5 as of January 3, 1997. The actual body count is 565. The current FTE headcount is equivalent to a 11 % reduction from the budgeted 624 positions. The one month turnover rate for December, 1996 was .9%. There were no external hires during December. Total external hires this fiscal YTD has been 6 (5 FTEs). The Districts is currently recruiting for the following positions: A LIMS Project Specialist in the Laboratory; and, an Electrical Engineer in Operations and Maintenance Administration . . * After the 12 early retirements anticipated by the end of March, the Districts' approximate FTE headcount will be 543.5. Jb c: Department Head AGM-Administration AGM-Operations General Manager H:\WP.DTA\HR\2520\BUCHER\AIT.DEC Revision: 8/28/96 Page 2 of 2 Employment Status Report Run Date: 3-Jan-97 -~ .,. Regular Regular .• --Total Regular Part-time Part-time Actual Vacant Total ~ n ,. i . Full-time 20hours 30hours Contract Intern LOA Headcount Positions Positions 2150 -General Management Administration 6 0 0 0 0 0 6 0 6 2160 -Board Secretary 1 0 0 0 0 0 1 1 2 2190 -Communications 7 0 0 0 0 1 8 1 9 Total General Management 14 0 0 0 0 1 15 2 17 2210 -Finance Administration 4 0 0 0 0 0 4 0 4 2220 -Accounting 20 0 0 0 0 0 20 0 20 2230 -Purchasing & Warehousing 14 0 1 0 0 1 16 1 17 Total Finance 38 0 0.75 0 0 1 40 1 41 241 O -General Servlces Administration 6 0 0 0 1 0 7 0 7 2420 -IT Hardware Support 4 0 0 1 0 0 5 0 5 2430 -IT Software Support 9 0 0 0 0 0 9 1 10 2440 -Plant Automation Support 6 0 0 0 0 0 6 0 6 2450 -Collection Facilities Maintenance 13 0 0 0 0 0 13 18 31 2460 -Plant Facilities 38 0 0 0 0 3 41 5 46 Total General Services Admin. 76 0 0 1 0.5 3 81 24 105 2520 -Human Resources 6 2 0 0 0 a 8 a 8 2530 -Safety & Emergency Response 5 0 0 a 1 a 6 0 6 2540 -Education & Training 6 0 0 a 0 0 6 0 6 Total Human Resourcl'!,s 17 1 0 0 0.5 0 20 0 20 3410 -Operations & Maintenance Admin. 12 a 0 1 4 2 19 1 20 3420 -0 & M Scheduling 6 0 0 0 0 0 6 0 6 3430 -Plant Operations 1 35 0 0 0 0 1 36 5 41 3440 -Plant Operations 2 46 0 0 0 0 0 46 10 56 3450 -Mechanical O & M 54 0 0 0 0 0 54 9 63 3460 -Electrical O & M 26 0 0 0 0 0 26 1 27 3470 -Instrumentation O & M 33 0 0 0 0 a 33 0 33 3490 -Central Generation Operations 13 0 0 0 0 0 13 0 13 Total Operations 225 0 0 1 2 3 233 26 259 3510 -Technical Services Adrnlnistration 3 0 0 0 5 0 8 0 8 3550 -Environmental Compliance & Monitoring 20 0 1 1 1 0 23 1 24 3580 -Environmental Science Laboratories 32 1 2 0 0 0 35 2 37 3590 -Source Control 39 0 0 0 0 0 39 • 0 39 Total Technical Services 94 0.5 2.25 1 3 0 105 3 108 3710 -Engineering Administration 2 0 0 0 0 0 2 0 2 3720 -Design Engineering 24 0 0 0 2 0 26 0 26 3730 -Engineering Planning 6 0 0 0 0 0 6 0 6 3790 -Construction Management 33 0 0 4 0 0 37 3 40 Total Engineering 65 0 0 4 1 0 71 3 74 ITo~I Stafflog " ,. -.-!~~'ii,,·i' ~" ~'1>¼_-1' ;-,i 529 ~.& 3 7, -7 7 8 ,, 665 --~ 59 ' 124 ~ -·"" H:lexcel.ela\hr\openlempdiv.xls 555.5 POC: FAHR: 01/15/97 EXEC: STEER: JT.BDS: 01/22/97 All AGENDA WORDING AND RECOMMENDED ACTION(S): Agenda Wording: AGENi... -\ ITEM TRANSMITTAL CONTACT FOR INFORMATION Division 3410, Mark Esquer, ext. 3010 Division No., Name, and Extension AMENDMENT No. 1 TO THE CONTRACT WITH PANENERGY TRADING AND MARKET SERVICES, L.L.C. FOR PURCHASE OF NATURAL GAS, SPECIFICATION P-170: The Operation and Maintenance Department requests that the Director of Finance be authorized to negotiate a change order and amendments to the original agreement in order to reduce projected natural gas expenses for 1996-97. Recommended Action(s}: 1. Authorize the Director of Finance or his designee to renegotiate, within guidelines from the FAHR committee, the contract amount and conditions, and to execute a negotiated amendment to the original agreement with PanEnergy Trading and Market Services, L.L.C. if appropriate. 2. Authorize the appropriate budget transfers within the Operations and Maintenance budget to cover the natural gas line item, budget information below. CEQA REVIEW: Project is Exempt: NOT APPLICABLE DATE OF MOST RECENT BOARD ACTION ON THIS SPECIFIC ITEM: Date Notice of Exemption Filed: Negative Declaration Approved on Final EIR Approved on_ and Notice of Determination filed on_ June 1996 (Resolution No. 96-55) CURRENT BUDGET/COST CURRENT YEAR CURRENT YEAR-YEAR-TO-DATE REVISED BUDGET INFORMATION BUDGET AMOUNT TO-DATE BUDGET BALANCE TOTAL EXPENDITURES (Total Budget plus Transfers) TOTAL BUDGETED AMT.: $980,000 $980,000 $529,467 $450,533 $1,480,000 SOURCE: Dept. 3400, Joint Operating Schedule/Line Items: 61 -Natural Gas AMOUNT OF TRANSFER: $500,000 Schedule/Line Item: 14 -Net Joing Operating Payroll, $125,000 22 -Odor Control Chemical, $250,000 23 -Sulfide Control Chemicals, $125,000 TOTAL PROJECT BUDGET ORIGINAL BUDGET PREVIOUS BUDGET BUDGET CHANGE REVISED TOTAL INFORMATION TOTAL CHANGES THIS AIT PROJECT BUDGET First Year in Budget: $980,000.00 $0.00 $500,000.00 $1,480,000.00 Master Plan Estimate: Year of First Costs: THIS AITNENDOR/PROJECT COST ORIGINAL BID, PO, CHANGE ORDERS, AMOUNT AMENDED PROJECT INFORMATION CONTRACT FUNDS PREV. REQUESTED THIS AMOUNT AMOUNT APPROVED AIT (PanEnergy portion only) $660,700.00 $0.00 $500,000.00 $1,160,700.00 Revised 1211 /96 Page 1 of 3 H:\WP.DTA \OM\341 O\ESQUER\AGENDA \FARGAS~1.JAN WILL PROJECT REQUIRE ADDITIONAL Pr )NNEL? NO If YES, state number: Permanent ~ ... ted Term REQUIRES BOARD 'CY ACTION? NO If YES, explain in AOL,, .. JNAL INFORMATION section CONCUR;np~ Signature Division ~o( D~ Date ATTACHMENTS TO AGENDA (List) To Committee: 1. Natural Gas Price Trend (Based on Futures) 2. Natural Gas Price Trend (Based on $2.25 Fixed) 3. Wall Street J.oumal Article, dated 12/17/96 Signature Department Head (Or Designee) Date To Jt. Bds.: 1. Items 1 &2, above ~/'i,. WtA4°M SI a re Assistant General Manager (Or Designee) Date ADDITIONAL INFORMATION (Background and/or Summary) The Districts use natural gas to fuel the Central Power Generation Systems (CGS) facilities. Natural gas is required because digester gas production is insufficient to produce all of the Districts' power needs. The Districts purchase natural gas from a marketer and pay transmission costs to the Gas Company. The Districts budgeted $980,000 for natural gas this year. Of that budget, $650,000 is allocated for a commodity from the marketer, $270,000 for transportation, and the remainder for domestic uses like heating. The current natural gas contract with PanEnergy Trading and Marketing, L.L.P (PanEnergy) will expire on July 31, 1998. The Districts saved approximately $170,000 during fiscal year 1995-96 by using a natural gas marketer versus purchasing natural gas from Southern California Gas Company (Gas Company). The historical usage and expenditures for natural gas are shown in Table 1. Based on the sharp increase in the cost of fuel over the past three months and Wall Street Journal estimates for natural gas futures, the natural gas budget line item may be exceeded by an estimated $500,000. Federal Energy Regulatory Commission (FERC) and California Public Utilities Commission (CPUC) rules allow cogeneration facilities, such as the Districts' Central Generation facility, to purchase natural gas for producing electricity and to sell power to the local utility companies. These cogeneration facilities are designated as "non-core, cogeneration" by the commission rules, which provide for certain cost benefits for transportation and fuel rates. However, the non-core designation also provides for a source of natural gas that is interruptible with notification which is bas·ed on the spot-market prices. Natural gas prices based on the spot-market can "float" on the market or be "fixed" for a given term. The Gas Company, under CPUC regulations, can only offer non-core subscribers the commodity based on the floating or variable prices. Until August 1995, the Gas Company provided the Districts with the commodity. The Gas Company prices change monthly and historically trend ten to twenty-percent above those published in Natural Gas Intelligence, Weekly Gas Price Index, also referred to as "NGI Prices·. The NGI Weekly Gas Price Index is an industry recognized, national publication that publishes natural gas prices paid throughout the United States during the prior week period. During the spring of 1995, staff investigated purchasing natural gas from suppliers other than the Gas Company and determ.ined that a reliable commodity could be purchased at lower prices. The Gas Company confirmed this fact and suggested that the Districts should seriously consider procuring the commodity from a marketer. At that time, the Districts decided to purchase the commodity from a marketer rather than the Gas Company. Unlike the Gas Company, marketers offer fixed as well as floating prices. Fixed prices offered by marketers are based on natural gas futures, hedged for unexpected trends in the spot-market. Floating prices are usually based on NGI prices, Wall Street Journal listings, or other price index, plus an adder or minus a deduct. The Districts' present contract monthly price is based on the average "California Border price" as published in the NGI Prices during the first week of each month, minus a deduct. The decision to pay for the commodity on a monthly floating price was based on the Districts' experience with the Gas Company, which until August 1995 had always provided natural gas. In addition, the Gas Company representatives explained that variable or floating pricing usually saved money over a long term period due to the hedges that marketers build into fixed-priced contracts. A survey of fixed and variable pricing confirmed the Gas Company logic. A trend of the natural gas index indicates prices have been stable, in fact slowly declining over the past since deregulation (refer to the attached trend of natural gas prices). Revised 12/1/96 H:IWP.DTAIOM\3410\ESQUER\AGENDAIFARGAS~1.JAN Page 2 of 3 ' ADDITIONAL INFORMATION (Bac11.ground and/or Summary) This past spring, the Districts solicited proposals for providing natural gas (refer to Resolution No.96-55 and the attached Board Report for additional information). Marketers were asked to provide both fixed and floating price alternatives After evaluating the alternatives, staff recommended and the Boards of Directors approved the floating price option. Since that time, all suppliers, including the Southern California Gas Company, have raised their prices in the current market. Staff is evaluating fixed-price alternatives for the supply of natural gas and various operating alternatives in order to limit the quantity of fuel purchased during this volatile market period. The unit cost of natural gas has risen dramatically during the past three months. During December 1996, the Districts paid $3.68 per million British Thermal Unit (BTU) for natural gas. This unit cost amounts to a 150-percent increase from last fiscal years' average of $1.48 per million BTU's. The increase in the price of natural gas is due to a shortage in supply, low reserves, and an unusually cold winter (see attached article). In addition, several disasters such as a hurricane along the Gulf coast which shut down gas production wells and a pipeline break in the Gulf of Mexico contributed to the fuel shortage. It is anticipated that the unit cost for natural gas will decrease as spring and warmer weather approaches. The actual expenditures over budgeted amounts will depend on the future spot-market. Staff is evaluating operating options such as importing some electricity in lieu of purchasing all natural gas in order to minimize the overage and has reduced the amount of power exported. In addition, staff is studying the option of temporarily locking into a reasonable fixed price alternative (possibly for six months), until the volatility in the market subsides. Staff will work hard to negotiate some relief to the current pricing, however, staff will not recommend locking into fixed prices unless reasonably assured that prices are favorable. Discussions with PanEnergy have been initiated in order to determine the feasibility of locking into fixed gas prices and to ascertain the fixed-price proposal they may offer. The following indicates the market's present volatility. On December 17, 1996, staff inquired about locking into a unit price of $2.25 per million BTU's for the six-month period between January 1, 1997 and June 30, 1997. A fixed-price of $2.25 for said period would limit the expenditures for natural gas to approximately $1,370,000, compared to the current projections of $1,480,000. PanEnergy representatives felt this was a reasonable offer, however, they needed to review gas futures before committing to a formal offer. By the time PanEnergy contacted staff, gas futures had risen by $0.40 and PanEnergy indicated that the fixed-cost price they have to offer was $2.80 per million BTU's for the specified period. The price of $2.80 per million BTU's is not a favorable price. Therefore, staff recommended to continue negotiations with the supplier. The deadline for locking into fixed-unit prices for January 1997 was December 27, 1996. Due to the volatile spot-market, PanEnergy will not guarantee nor hold quotes. In other words, a decision to lock into a fixed price must be made at the time of the quote. Therefore, staff is requesting authorization to lock into a fixed rate, should favorable prices be presented. Recommendation Staff is requesting authorization for the Director of Finance to renegotiate, within guidelines from the FAHR committee, the current contract amount and conditions, including converting from variable to fixed-prices should favorable pricing be presented by the marketer, and to execute the negotiated amendments to the original agreement with PanEnergy if appropriate. Budget information, estimated expenditures and transfers are provided as information on the first page of this Agenda Transmittal form. Staff is recommending that the appropriate transfers be made within the Operations and Maintenance budgets so that total budgeted expenses do not increase. MAE:cf/pjm c: Department Head AGM-Administration AGM-Operations General Manager Revised 1211 /96 H:\WP .DTA\OM\341 0\ESQUER\AGENDA\FARGAS~1.JAN Page 3 of 3 ' en C -z w 0::: 1- w 0 -0::: a. en W en 0~ :z ~ W ns (!)~ I -...J ~ ...J en ~~ Z C -ns en -, <( (!) ...J <( 0::: ::, I-<( z - - --· - "C C: ~ 1- cii C: 0 1/) C'!l Q) en --.. -- ----·- -~--.. ----: - (.) "iii ::, 0 <{ "'O C: ~ I- • --- i ! ! I - - - i -+-I I Jew ss.uer AON das -1nr ± ~ew t Jew I ss,uer AON das J 1nr ~ew Jew Ls,uer -t AON das -t ss.1nr ~ew ! Jew 95,uer AON das ss.uer AON das ----ts.1nr ~ew Jew 1----------;------.----f-------.--------<4...-,::-+-"'.__--I,-----,----....--------+ ts.uer M N ... 0 Trend of Districts Cost for Natural Gas (Future Cost from Wall Street Journal, dated 12/17/96) Ilk J:) $4.03 4 ·••·•··•···················. Futurrost -A -·····-····················· .......... ··:::~t:..~: ? i\ J!! ·2 :::, 3 ·• ·•···· ii e GI ~ .c en ~ m C ~ 2 i .. 8. f! .!! 0 C 1 $2.28 Actual Expenditure: $1,097,177 (1994-95 FY) I I I I -• I ' I ~ I·-·-····\ ............. , $1.60 $1.66 I I I I I \ i \ I , I I I ·•··•··-···········l··-··-······················· 1 I · Actual Expenditure: I Projected Expenditure: I $920,907 I $1,480,000 _I _ (1995-96 FY) •I•-(1996-97 FY) I I I , I I I I I I I I I I I I ' I 1 ,, 1 ,, / I ,I I I I I I I I I / I I : ' O I 1 1 1 : , "It' enc. .. > uu,.c .. m ::s GI u o GI m GI m ~ < ~ 0 z C ~ ~ ~ ::s m "") "") g:\excel.dtalom\341 Oldube\ngitrend.xls .. >, C. m < ~ GI II) Cl) C. C pt ::s GI ::s < ~ "") ::s "") .. > u co .Cl .. .. u 0 GI pt GI m C. 0 z C ~ ~ < C m "") Future Cost >, GI co Cl) C. .. > u ,... .Cl .. .. >, ,... m C pt ::s GI u 0 GI m GI m Q. m m ~ ::s < ~ 0 z C -~ ~ < ~ -"") ::s C C "") m ::s "") "") 1/2/97 s ·c 4 -•---······ :::, 3 •···-· iii § CII .c 1- .c fl) ~ ·;: m C ~ 2 :i ... Cl) C. ! .!! 0 C $2.28 Trend of Districts Cost for Natural Gas (Future Potential Cost if Negotiated) $3.68 I\ Future cost 1 based on I \ fixed price ·-·Tl° I • I \ I I \ $2.25 : ...... ~ ..... I -·· ···-·---···----------··----, .. , .... --,·-·········•······· ""j" .... I I I . I I 1 ~1 I I I I I 1 ..... ···' ·········-·•-·•• ------l--················· ... 1. ········································.l·-··-·-·-·-···----··.1· Actual Expenditure: I I Actual Expenditure: I Projected Expenditure: $1,097,177 I $920,907 I $1,309,000 •-(1994-95 FY) l -• .}--(1995-96 FY) -•I+ (1996-97 FY) • I ' -• I I I I I I I I I I I I 1. I I 0 I I '11:1' C>C.t, > CJ O> ::S CII Q O CII :.. < U> Z C :::, .., g:\excel.dta\om\341 O\dube\ngitrend.xls It) .0 ~ ii >, Cl) It) ~if:e<i §~ C -, :::, ~ .., C> CL ,..CJ > CJ ::s a, 0 o a, ct U.> Z C C0.0 ._ ._ >,CIICO er, a, ns C.ns co, -u..:E<:i; :::,• C -, :i ~ .., Potential Cost C, C. ... CJ > CJ :::, Cl) 0 0 Cl) ct U> Z C ~.0 ...... >,~ er, CII ns C.i,so, -u..:E<:i;· C C ns ::s .., .., 1/2/97 ) _) TABLE 1 COUNTY SANITATION DISTRICTS OF ORANGE COUNTY History of Natural Gas Consumption and Expenditures (1 ): FY 94-95 TO FY 96-97 CENTRAL GENERATION OTHER USES TOTAL USE FY 94-95 FY 95-96 FY 96-97 FY 94-95 FY 95-96 FY 96-97 FY 94-95 FY 95-96 2FY 96-97 Thenns $ Therms $ Thenns $ Thenns $ Thenns $ Thenns $ Thenns $ Thenns $ Thenns $ Jul 347 045 93,104 323,077 61,620 411,695 91 ,361 20,616 11,692 10,383 6,459 5421 2,820 367,661 104,796 333,460 68,079 417,116 94,180 Aug 403,229 107,556 364,869 63.449 403,047 108.501 17.526 10,017 7.957 4.966 5518 2.869 420.755 117,573 372,826 68.415 408,585 111,369 Sep 408,886 104.769 405 875 79,172 397,958 89,604 18 501 10.550 7 531 4 567 5303 2,758 427,387 115,318 413,406 83 739 403,261 92 362· Oct 399,951 96,478 409 830 83.181 365.395 88.662 21,367 12,126 10.120 5 932 7201 3,715 421,318 108,604 419,950 89,113 372,596 92 377 Nov 382 041 98,178 399,662 83,328 360 000 113,688 28,540 16,048 9,894 5,684 9500 5,700 410581 114.226 409,356 89,012 369,500 119,388 Dec 305 492 89,216 376,064 79,935 360,000 152,568 25,711 16,514 13,351 7,864 9500 5,700 331,203 105,730 389,415 87799 369,500 158.268 Jan 323,294 82,674 370,586 74.975 360,000 165,168 16,996 10,588 13,574 7,015 9500 5 700 340.290 93,262 384,160 81 991 369,500 170 868 Feb 227.647 57.607 339,049 66,201 360,000 147,168 11,956 7,485 11,575 6,005 9500 5,700 239 603 65.092 350,624 72.206 369,500 152,868 Mar 280,178 58,548 351179 66,777 360.000 130,968 14,122 8,820 11,490 5,965 9500 5,700 294,300 67,368 362,669 72,741 369,500 136,668 Apr 276,112 56.275 337,586 61 ,500 360 000 112 968 15.080 9,347 8.201 4,220 9500 5.700 291.192 65,622 345.787 65,720 369.500 118,668 M"" 293,913 60,153 364.881 66,505 360,000 103,248 13,054 8102 6,261 3 242 9500 5,700 306,967 68,255 371,142 69,748 369,500 108,948 ') Jun 294,663 60,224 365,697 69.516 360 000 100,008 17,942 11,108 5.450 2,833 9500 5,700 312,605 71 ,331 371,147 72,348 369,500 105,708 I TOTALS 3,942,451 964,780 4,408,355 856.158 4,458,095 1,403.911 221,411 132.397 115,587 64,753 99,443 57,762 4,163,862 1,097,177 4,523,942 920,911 4,557,538 1,461,672 Note: (1) Expenditures are Indicated during month that consumption occurred. Does not reflect accruals or projections. (2) Includes projection offuel consumption for FY 96/97. Projected monthly cost is based on Natural Gas futures published in Wall Street Journal dated 12/17/96 ---g:lexcel.dtalom\341 Oldube\GASUMARY.XLS 1/2/97 I l I \ • _,t ORANGE COUNTY SANITATION DISTRICTS NEWSPAPER CLIPPINGS Name of Paper Section Page Date Subject IJALL 6TfiZr L,ua L { 'o~n~P1ft8. {17 l,J._/J/CJp 1V 41"t·U~: ,U.. C-/1--s /4 /(( R (?7 • • •• • .. -• ·-··· # ...... ..: ... _,., •• ·t ........ ":t .... t!·'·· -~t1,,:~•·,t,-;-·•.~··. =. . --· ·, ··-~: ·-·•.-· -·. ··.:··~:-·R • -··i .. _-~Recotds ·;o,i'~;N _ .. ;•mex·: . N atu., ,:,~Z.J;q,s),i' !,L!Jl,,T_~-;-~e, ,'?,. · , c; 1..;-;. . .,, .. c.c.r,:.;,,,,J,,,-rc, • · · ~ · . • . . . . • ·,:. -~ r ~(l•ifr~mptlng 1 hi>ot buye~ in ihe physleaf_"'i 'jN1i~r.rar ·: .. ~Jrr~, :[ ·':.. ..-~-COIVJMODITIES .. :_ · : r.market to s_crambl~-.~~r._ ~ ~ .. ~~~ :~~:-_t . -·:· l!f · ;_i~ » 1 1 ut; _ , . , ... ,. . . peeled demand. , , . .-. . . ~. .,i~ , , . .. 1., __ ,, ~ :. ey PEmr. ~~, _. · ·:~\~ · J' · .· ~ .trader for one producing mmpany ., .. , -~ ~~tu•.-.:1...,.:-1:!trt;':.~i;: ~;:·•~• . :,, 5',all Rl!'port,r of Tull: w w. 6TIIEH JOURNAi. I •• said he sold phystca:t gas ror as much. Ii.! :i ' . ' 4"·. r-t:~rt i; !:: l i1 ~ I J :"' .. . , . The arctic blasl expected to hit much of -~-S.4.50 per million BTUs, a prtce. not seen . , . . . ····;'· ~-::·:."t;i;-:;-:::1·~:.:,;:J·:·q·:·;··· "the coun_try thl9 week conspired wt~ low.,:. since pie frigid winter of 1982·83. He said·, .·f .J _,t: fti't~ .ti}!: t.:.j;::,ilf:'~ir; !: .r · . Inventory levels lo send n.atbral-gas fu-~·spot gas i;ould ea~1ty sell for as.much u ss. ~.:-l · .1,.t!:;'J-:·\f~;1i~l~-:l .f.f ·· ! i . Utures to historic hlghs·on ~!.~,'!:!~rt, .iper million BTUs later this week. :. ·.:/;:t, ...,-=:c"!.~i,..1·t~:ft'J:\·'.lf~fi!il\"': · : • Mercanllle Exchange. :., ·:.:. :-1 ·..:,: :;_,:_ '-~~ · Because the cold II expected u 1ar , .i -: .. p~f:·1hl .. i ~-1-lr.h.: . ll; ··Natural gas for ·January delivery at .;-'soulh as .µie -GuU Cou.t P3:-p~uc1nr :,i · ... 1~:.·1tJ.r=,:1~! ,j-tt•,~~i•=:1 -H<:t· .. ,i Sthe Henry Hub In Louisiana.rose 6.J6cents :'"regfon,,:l!Omemarketob~"er'S ,~ared lha~ '• "I'. • . .:·~tr·:_ f~t,1n·~· l•rh\i . a mllllo!l ~rlttsh thermal unlla to 11etUe a.t ·wells_ could freeze, exacerballn1 .~~per-;,,: }1'.5Li:i~t;=<l'": :_. :·· i . ..i:l~],~r - St.467 per mlJllon BTUs-the highest any ~.'ceptton or a supply squeeze. :··~:.>:.:; =::: · r ;~ 1 •l-f; · · , ... ,,~ : : , ,i: ::!,P.-l : -~~Nymex gas contract .~as ever selU~'.jr·. ·.The :mld .wlll Indeed Und 11, market ~-! .'! ~-l ·j;i~trl!.:1:i~!,;•-l~ ; i ~~,: nOlher natural-gas conlracts !l'so rose. . f: · ' ! running tight on storage. Nationwide gas ,~ , • , , ~ · :. ·. · · · t • , ·c _ _;, · ; · ,_: . ft Whtie lhe move was surely a boo~ lo . :·storage. totaled 2.375 trtlllon cubic fee_t u .;rmJ.1{'ffl:fflll~:.ti: \ , t~t?;·-~~-i~: O{futures~market speculators, physical gu. :.or Dec. s, a six-year low, and well below . ,J: ,i,:, ~ ,iijai t •;: . . .. ~s ~ .. ~ g producers were rumored to have been hit 4 ,:; the 2.~89 trlUlon cubic reel ln storage a 1 (a,i, H ~ ' . . . -~'\t ~~ · hard wllh futures losses. Typtca.tly, com· . year earller,-according to the American ·. ,l -. . umodlly_ producers take short poslUons 1.-: ~as Assoclatlon •. The AGA wtll report U.e.: .1Jur~ ~rlces;_/Wheijt:ror ~arch delivery lthe futures markel;S to hedge agalns_~~ . i'latesl week's stQrage Hgures "'mom>!, 'k~rose seven ce,n~ a Jllll!he_l loclose at S3.96 a · .sudden and unexpected fall In prices. ' ·, '!,: Increastngly, natural-gas sellers such ·ibushel al the .Eblcago_ Board of Trade .. : "At this point, If you are short anything tii.s locai dlstrtbutfon companies are operat-k Soybeans. for .January delivery .r:ose 7,25 tbut S4.56 lp~r mlllton BTUs, the January -.~Jng on the Just-In-time theory of Inventory }~enls to ir-~~ij .a ~~hel,. wh~e com for :ucontract's lntraday high yesterday), you i-:. management popular , ~th 011 renners. .} March detlver1. .a:'15~-~ ~~~·'-~ ~~f. a . ar:e losing money," said Mike DeLuca, , ;:They think II ts cheaper to buy expen• / bushel. !;~· :iu,:, :. l ;: r •.•1 t.1 · +~ · \..L~,, · : energy rutures trader with Prudenllal Se-; ,slve, Incremental supply than It Is to~-. 11,-- ,.curttles. "Some pltlducera ai:e getUng h~ ~ :·relatlvely expensive storage on the ~ks. , 'i ~bad.". ' . .' • .-:. . ~ :;'_:-•:~:·: ";". :·,"':i,.'"it1J; .. 1:rhe cold weather also·nrted the rest or ~; a, Subzero temperatures are forecast to .. ;,. the Nyme1 energy complex to &Ue:or-am~ . , . blanket. much of the U.S. by Thursday, 'ilr~ct_hlJhS. >i'.·. :• .. ~; ·: • ~ .... ':·· . ? ~.:n ·I · . · f •January beating-oil futures s~ttled.at ~; ~ COMMODITY INDEXES .' t l.74.82 ce~ts a gallon, up 3.11 cents a gallon. :·· 1F-.. . . . .•. ,, . , . .. . . .. January wiottn~ futures closed at 69.~2 ;· • Man111,~1" lfN ~·: ·•.· ···~!,·,cents a gallon, up 2.48. cents _ a gallon. l _ . ;: ·•/ • .n.r.;1 cloit ·~ = ~-! ; January ·crude-oil futur~ .~~ed S~~Zl., ~ -i •• .,_ F.t\llffl ............ :-' .... 1'5.to __ UJ 147·15 , barrel to $25. 74 a .barrel. _ _ · · . • · · · ,.,.. J-, .. , ···---·---·-·:--·--: •l•.s. -,.1, iu.n t GRAINS· an_e•pected mid spell across ltllrttr U1llttl Klllldl111 __ ,,..,, INSJ ~ AO 11-W , .:· , ~ a flC 1-c 11 • Fu1un1• ... , ........ :.... 20.se + ,_., 20.CN 1 'the Midwest later this week boosted fu• .ti •Dlvlsloll of BRIDGE. • •! • , '. '\ ) _) ,/~ '\ w ilNT BOARDS OF DIRL_;TORS REGULAR MEETING JUNE 26, 1996 Agenda Item (18)(c): Consideration of Resolution No. 96-55, receiving and filing bid tabulation and recommendation and awarding contract for Purchase of Natural Gas, Specification No. P-170, to Pan Energy Trading and Market Services, Inc., for the discount price of $.022/MMBTU, for a two-year period beginning August 1, 1996, with provision for two one-year or one two-year renewal(s) (Estimated annual cost $660,700.00 plus transportation costs of $248,300.00 for total annual cost of $909,000.00) (OMTS96-012). Summary The Districts use natural ,gas to fuel the Central Power Generation Systems (CGS) facilities. Natural gas is required because digester gas production is insufficient to produce all of the Districts' power needs. The current natural gas marketing contract will expire on July 31, 1996. The Districts have saved $126,356 during the first nine months of Fiscal Year 1995-96 by using a natural gas marketer versus purchasing natural gas from Southern California Gas Company (Gas Company). Staff solicited proposals from marketers for the purchase of natural gas in order to continue receiving natural gas cost savings. The successful marketer will also provide fuel for the new Compressed Natural Gas Fueling Station. The Districts must also pay the Gas Company to provide intra-state transportation and metering services per contract through July 31, 1997. Staff estimates a total Central Generator natural gas consumption of 451,369 MMBTU (Million British Thermal Units) per year. In addition, the Districts anticipate using an additional 14,100 MM BTU per year of natural gas at the compressed natural gas facility. Four proposals were received on May 14, 1996. Proposers submitted prices based on one-year and two-year f1Xed price contracts, and one-year and two-year indexed cost contracts. The indexed costs are based on the nationally recognized Natural Gas Intelligence Index (NGI) price which vary depending on market conditions and fluctuations. The bids were compared based on projected usage and historical index pricing levels. The apparent low bid was based on the NGI Index price discounted $0.022/MMBTU for both the one and two year terms with an annual estimated cost of $660,700 plus transportation costs adding approximately $248,300 for a total cost for natural gas of $909,000. The high bid was based on the fixed price of $1.48/MMBTU with a projected annual cost of $668,025. Budget Information The estimated annual cost associated with the low proposed option, including Intra-state transmission by the Gas Company is $909,000 per year. The slightly increased cost this year from last year is due to a projected lower availability of natural gas supplies. Districts' staff have recommended a budget of $890,900 for Fiscal Year 1996-97. Staff Recommendation Staff requests authorization to adopt Resolution No. 96-55, receiving and filing bid tabulation and recommendation and awarding contract for Purchase of Natural Gas, Specification No. P-170, to Pan Energy Trading and Market Services, Inc., for the discount price of $.022/MMBTU, for a two- year period beginning August 1, 1996, with provision for two one-year or one two-year renewal(s). (Estimated annual cost of $909,000.00). OMTS Recommendation The OMTS Committee approves and supports staffs request to award contract for Purchase of Natural Gas, Specification No. P-170, to Pan Energy Trading and Market Services, Inc. for authorization to procure natural gas from a private marketer and supports the staff recommendation to award a contract as outlined above. J:\WPDOC\BS\AG96\.JUN96Vi.18C ·May 17, 1996 TO: FROM: SUBJECT: '~ I MEMORANDUM Robert J. Ooten, Director of Operations Marc Dubois, Contracts/Purchasing Manager PURCHASE OF NATURAL GAS SPECIFICATION NO. P-170 Sealed bids were opened May 14, 1996, for the Purchase of Natural Gas, Specification No. P-170, for a two year period beginning August 1, 1996. Tabulation of bids is as follows: Normalized Company Annual Discount From Fixed Price Estimated NGI (2) Cost (1) TERM 1 Yr.. 2 Yr. 1 Yr. 2Yr. Pan Energy Trading & Market Services $660,700.00 $.022 $.022 No No Irvine, CA Quote Quote Amoco Energy Trading Corporation $663,500.00 $.0159 $.0160 $1.499 $1.549 Newport Beach, CA CanWest Gas Supply U.S.A., Inc. $666,100.00 $0.01 $0.01 No No Vancouver, B.C. Quote Quote Coastal Gas Marketing Company $668,000.00 $.005 $.005 $1.48 $1.53 San Diego, CA (above NGI) (above NGI) (1) Normalized cost does not include cost of transportation and is based on the lowest cost option from each vendor. (2) Natural Gas Intelligence Gas Price Index. (3) Bold indicates basis for lowest cost for each vendor. Staff recommends a contract be awarded to Pan Energy Trading and Market SeNices, for the purchase of natural gas, for a discount of $0.022 per Million British Thermal Units·below the monthly Natural Gas Intelligence Index Price, for a two year period beginning August 1, 1996. The· estimated annual market gas use of Central Generation and the Compressed Natural Gas facilities are 451 ,369 MMBTU per year, respectively. Provisions are in the specifications for one two-year contract extension periods. Approved: Katherine Yarosh Senior Buyer re Dubois ontracts/Purchasing Manager G:\WP\PURCH\HELLER\GAS1 We ie· eby concur ..with re above recommendations: I , l lQ / I • • I '. : , ' /4/--/ I / ,,.._ . .:._ '< - Ga~ Streed t • Director of Finance Robert . Ooten ~ Director of Operations CSOOC • P.O. Box 8127 • Fountain Valley, CA 92728-8127 • (714) 962-2411 OMTS: PDC: FAHR: 1/15/97 EXEC: STEER: JT.BDS: 1/22/97 AGENDA WORDING AND RECOMMENDED ACTION(S): Agenda Wording: AGENL . ITEM TRANS MITT AL CONTACT FOR INFORMATION 2210, Gary Streed, 2500 Division No., Name, and Extension AMENDED DEFERRED COMPENSATION PLAN FOR DIRECTORS AND EMPLOYEES (All Districts): The Director of Finance and General Counsel request that they be authorized to develop an amended deferred compensation plan which will comply with the changes resulting from P.L. 104-108, the Small Business Job Protection Act, as described under "Additional Information," and to take the amended plan to the Joint Boards for consideration and adoption. Recommended Action(s): Authorize the Director of Finance and the General Counsel to complete an Amended Deferred Compensation Plan for Directors and Employees in order to comply with new provisions of P.L. 104-108, and to present the Amended Plan to the Joint Boards of Directors for consideration and approval. CEQA REVIEW: Project is Exempt: YES Date Notice of Exemption Filed: Negative Declaration Approved on Final EIR Approved on_ and Notice of Determination filed on_ CURRENTBUDGETICOST INFORMATION TOTAL BUDGETED AMT.: N/A SOURCE: CORF JO DISTRICTS Schedule/Line Items: AMOUNT OF TRANSFER: Schedule/Line Item: TOTAL PROJECT BUDGET INFORMATION First Year in Budget: Master Plan Estimate: Year of First Costs: THIS AITNENDOR/PROJECT COST INFORMATION CURRENT YEAR BUDGET AMOUNT NIA ORIGINAL BUDGET TOTAL ORIGINAL BID, PO, CONTRACT AMOUNT WILL PROJECT REQUIRE ADDITIONAL PERSONNEL? NO If YES, state number: _ Permanent _ Limited Term Revised 12/1196 H:\WP.DTA\FIN\2210\CRANE\FPC.MTG\FAHR.97\FAHR97.05 DATE OF MOST RECENT BOARD ACTION ON THIS SPECIFIC ITEM: Res 94-39, 95-80, 95-81 CURRENT YEAR- TO-DATE EXPENDITURES N/A PREVIOUS BUDGET CHANGES CHANGE ORDERS, FUNDS PREV. APPROVED YEAR-TO-DATE BUDGET BALANCE N/A BUDGET CHANGE THIS AIT AMOUNT REQUESTED THIS AIT REQUIRES BOARD POLICY ACTION? YES REVISED BUDGET TOTAL (Total Budget plus Transfers) N/A REVISED TOTAL PROJECT BUDGET $0.00 AMENDED PROJECT AMOUNT $0.00 If YES, explain in ADDITIONAL INFORMATION section Page 1 of2 CONCURRENCES: ATTACHMENTS TO ,' ~DA (list) To Committee: 1. Date I?-'3o (9 0 Si ature Date ToJt. Bds.: 1. Department e d (Or Designee) ~w~ Si~ Date Assistant General Manager (Or Designee) ADDITIONAL INFORMATION (Background and/or Summary) Since 1975 the Districts have offered a deferred compensation plan to some or all full-time employees. Over the course of the period, the plan has been modified in 1981, 1983 and 1994 to conform to changes in the Federal Tax Code or to alter the plan. As a part of the Small Business Job Protection Act of 1996, also known as the Federal Tax Act of 1996 or P .L. 104-108, the recently adjourned 104th Congress made several changes to Section 457 of the Code which governs our deferred compensation plan. The major changes are summarized below. • The Code now requires all plans to expressly provide that the Plan Assets are held for the exclusive benefit of the employees, in a trust, custodial account or an insurance contract. Previously, the Code required very strict language explaining that the assets belonged to the public agency. Existing plans have until January 1999 to comply with this provision, but the Districts' deposits in the Lincoln National Life Insurance Annuity program will qualify ahead of the deadline. • The Code now provides for annual increases in the maximum contribution per year to reflect inflation. These changes will be based upon the change in the Consumer Price Index, and will be in $500 increments when appropriate. The current maximum of $7,500 per year will remain unchanged for 1997 as the change in the Index did not reach the required threshold. • The Code how allows some flexibility to choose when deposits will be distributed after retirement. Retirees are now allowed one additional distribution election after their initial election of commencement date, duration and amount of payout. Currently, retirees must make a binding choice at the time of separation. • The Code now allows amounts less than $3,500 to be distributed to participants while they are employed, so long as the employee has not contributed to the plan in the preceding 24 months and has not received any prior distribution other than a "hardship" distribution. Prior rules allowed distributions only in the event of an "unforeseen financial emergency." Staff and the General Counsel are working together to develop an Amended Deferred Compensation Plan for Directors and Employees. Adoption of this plan will require the Joint Boards of Directors to adopt a new Resolution and to repeal Resolutions Nos. 94-39, 95-80 and 95-81. Recommended Action Staff and General Counsel recommend the Finance and Human Resources Committee authorize the completion of an Amended Deferred Compensation Plan for Directors and Employees in order to comply with new provisions of P .L. 104-188, and presentation of the Amended Plan to the Joint Boards of Directors for consideration and approval. GGS c: Department Head AGM-Administration AGM-Operations General Manager Revised 12/1/96 H:\WP.OTA\FIN\2210\CRANE\FPC.MTG\FAHR.97\FAHR97.05 Page 2 of2 PDC: FAHR: 01 /15/97 EXEC: STEER: JT.BDS: 01/22/97 ALL AGENDA WORDING AND RECOMMENDED ACTION(S): Agenda Wording: AGEN~ ITEM TRANSMITTAL CONTACT FOR INFORMATION 2210, Steve Kozak, 2504 Division No., Name, and Extension REVISION TO MATURITY CONSTRAINT FOR THE DISTRICTS' LONG-TERM OPERATING MONIES INVESTMENT PORTFOLIO (All Districts) Recommended Action(s): Staff recommends that pursuant to Section 16.1 of the Districts' Investment Policy, the Committee adopt a motion to recommend that the Joint Boards of Directors approve the following recommended actions. Pursuant to the requirements of California Government Code Section 53601, the Districts' external money managers may implement securities purchase authority no sooner than three months following the date of this Board action. 1. Revise Section 8.2 of the Districts' Investment Policy to read: "Mortgage-backed securities issued by an agency of the U.S. Government which are backed by pools of mortgages guaranteed by the full faith and credit of the U.S. Government, or an agency thereof. Selection of mortgage derivatives, which include interest-only payments (IOs) and principal-only payments (POs); inverse floaters, and re-ramies, is hereby prohibited." 2. Revise Section 8.11 of the Districts' Investment Policy to read: "Collateralized mortgage obligations (CMOs) issued by agencies of the U.S. Government which are backed by pools of mortgages guaranteed by the full faith and credit of the U.S. Government, or an agency thereof, and asset-backed securities rated "Aaa" by Moody's and "AAA" by S&P. Selection of mortgage derivatives, which include interest-only payments (IOs) and principal-only payments (POs); inverse floaters, and re- remics, is hereby prohibited. Securities eligible for purchase under this Section 8.11 shall be issued by an issuer having a rating on its unsecured long-term debt of• A" or higher. Combined purchases of mortgage-backed securities, CM Os, and asset-backed securities, as authorized under this Section 8.11 may not exceed 20% of the total Long Term Operating Monies portfolio." 3. Revise Section 11.11 of the Districts' Investment Policy to read: "No more than 20% of the Long Term Operating Monies portfolio may be invested in a combination of mortgage-backed securities, CMOs, and asset-backed securities. Mortgage-backed securities, CMOs, and asset-backed securities may only be purchased by the Districts' external money managers with prior Board approval, and may not be purchased by the Districts' staff." 4. Authorize the Districts' external money managers to purchase mortgage-backed securities, CMOs, and asset-backed securities for the Long Term Operating Monies portfolio, pursuant to the requirements of Section 11.11 of the Districts' Investment Policy. 5. Authorize the Districts' external money managers to purchase individual securities, providing the securities are permitted under Section 8.0 of the Policy, which may have a final stated maturity of more than five (5) years from the date of their purchase, pursuant to the requirements of Section 12.2.1 of the Districts' Investment Policy. CEQA REVIEW: Project is Exempt: NOT APPLICABLE Date Notice of Exemption Filed: Negative Declaration Approved on Final EIR Approved on_ and Notice of Determination filed on _ Revised 12/1 /96 H:\WP.DTA\FIN\2210\CRANE\FPC.MTG\FAHR.97\FAHR97.06 DATE OF MOST RECENT BOARD ACTION ON THIS SPECIFIC ITEM: September 25, 1996 Page 1 of2 CURRENT BUDGET/COST CURRENT YEAR INFORMATION BUDGET AMOUNT TOTAL BUDGETED AMT.: NIA NIA SOURCE: JO Schedule/Line Items: AMOUNT OF TRANSFER: Schedule/Line Item: TOTAL PROJECT BUDGET ORIGINAL BUDGET INFORMATION TOTAL First Year in Budget: Revenue Master Plan Estimate: Year of First Costs: ~ AITNENDOR/PROJECT COST ORIGINAL BID, PO, INFORMATION CONTRACT AMOUNT WILL PROJECT REQUIRE ADDITIONAL PERSONNEL? NO If YES, state number: _ Permanent Limited Term Date (2-°3,J-7 t Si nature Date Departmen ead (Or Oesignee) ~-CA)~~ t/,/q{, ~ Date Assistant General Manager (Or Designee) SK c: Department Head A GM-Administration AGM-Operations General Manager Revised 1211196 H:\WP.DTA\FIN\2210\CRANE\FPC.MTG\FAHR.97\FAHR97.06 CURRENT YEAR-YEAR-TO-DATE REVISED BUDGET 1 TO-OATE BUDGET BALANCE TOTAL EXPENDITURES (Total Budget plus Transfers) NIA NIA NIA PREVIOUS BUDGET BUDGET CHANGE REVISED TOTAL CHANGES THISAIT PROJECT BUDGET producing program. CHANGE ORDERS, AMOUNT AMENDED PROJECT FUNDS PREV. REQUESTED THIS AMOUNT APPROVED AIT REQUIRES BOARD POLICY ACTION? YES If YES, explain in ADDITIONAL INFORMATION section ATTACHMENTS TO AGENDA (List) To Committee: 1. Staff Report 2. Attachment "A" 3. Attachment "B" 4. Attachment "C" To Jt. Bds.: Page2of2 January 15, 1997 FAHR97-06: Background STAFF REPORT Revision to Maturity Constraint for the Districts' Long Term Operating Monies Investment Portfolio On September 25, 1996, the Joint Boards approved the Districts' updated Investment Policy ("the Policy''), as recommended by the Finance, Administration & Human Resources Committee ("the Committee") when they approved the Policy at their September 11, 1996 meeting. In October, in response to a request from the Districts' external money manager, PIMCO, the Committee requested information about the risks and returns associated with lengthening the maturity of the Districts' Long-Term Operating Monies portfolio. At their November meeting, the Committee received a presentation on the subject from the Districts' Investment Advisor, Callan Associates. The Committee instructed staff to report back to the Committee in January 1997, with recommendations for lengthening the maturity of the long-term portfolio. This item presents a review of portfolio maturity and risk control, and recommendations for revision of the Policy to enhance the Districts' investment program. Controlling Risk Section 1.0 of the Districts' Investment Policy states: "It is the policy of CSDOC to invest public funds in a manner which ensures the safety and preservation of capital while meeting reasonably anticipated expenditure needs, achieving a reasonable rate of return and conforming to all state and local statutes governing the investment of public funds." The Policy contains four methods of controlling or constraining investment risk. These risk constraints guide the Districts' external money manger, PIMCO, in their investment decisions on behalf of the Districts. Portfolio diversification is the first risk control. The Policy's diversification guidelines define authorized and suitable investments; establish maximum percentage proportions for the types of securities that are allowed in the portfolio; and limit the amount of securities from a single issuer/institution to 5% of the portfolio (excepting securities issued by or guaranteed by the full faith and credit of the U.S. Government). CSDOC e P.O. Box 8127 e Fountain Valley, CA 92728-8127 e (714) 962-2411 FAHR97-06 Page 2 January 15, 1997 The second risk control is the duration constraint, which is tied to a performance benchmark. The benchmark for the long-term portfolio is the Merrill Lynch Government and Corporate One-to-Five Year Maturity Index. This benchmark is used to measure and control the sensitivity of the portfolio to increases or decreases in interest rates over time, as the market value of the portfolio can go up or down with changes in interest rates. Credit quality is the third investment risk control. This constraint reduces the risk of default by establishing credit rating requirements (Moody's and S&P) for securities that may be included in the Districts' portfolios. Lower credit quality securities are thereby eliminated from the portfolio. Stated maturity. the fourth risk control, is the topic of the present analysis. The current Policy stipulates that the Districts' long-term portfolio shall not contain any security with a stated maturity of more than five years, unless otherwise authorized by the Joint Boards of Directors. Generally, securities with longer dated maturities are more price sensitive than shorter term securities because the market value of longer maturity securities can shift as a result of interest rate changes over time. Thus, the maximum maturity constraint is intended to reduce interest rate risk of individual securities in the portfolio. At the same time, it is important to note that the existing duration constraint, which will not be altered, is the primary guideline that controls the level of interest rate risk in the portfolio. Results of Analysis In considering the proposal to revise the maturity constraint for the long-term portfolio, we must review any resulting changes in the risk/return characteristics of the long-term portfolio. The Districts' Investment Advisor, Callan, in conjunction with PIMCO and Districts' staff, analyzed alternatives for lengthening the maturity of the long-term portfolio. The following discussion reviews the analysis and its results. A copy of the Callan report is included in Attachment "A" for more detail. In general terms, the Districts' external money manager generates a return on investment for the portfolio by selecting securities from various market sectors, and with various maturity and yield characteristics. PIMCO uses three primary investment tools to add value to the Districts' portfolios. These tools are: interest rate strategy, also called duration; yield curve strategy; and selection of specific securities. In turn, PIMCO must manage the portfolio within the investment guidelines of the Policy. These guidelines effectively constrain the level of risk which PIMCO is authorized to employ through the use of the investment tools. From a risk/return perspective, PIMCO must manage the portfolio so that its duration stays within +/-20% of the Policy's benchmark duration constraint. Thus, the exposure of the portfolio to market price/interest rate fluctuations is controlled. The Policy's diversification and credit quality constraints should work in concert with the duration constraint. However, the present analysis revealed that, to a certain extent, the maturity constraint is inconsistent with the duration constraint. FAHR97-06 Page 3 January 15, 1997 The net result of this conflict between the duration and maturity constraints is that the Districts' external money manager is restricted from selecting securities from certain market sectors for inclusion in the Districts' long-term portfolio, because the stated maturity of these securities exceeds the Policy's five-year maximum stated maturity constraint. At the same time, these market sectors are permissible investments under Section 8.0 of the Policy. This inconsistency between the duration and maturity constraints limits PIMCO in their ability to fully implement their yield curve strategy to the advantage of the Districts' long-term portfolio. Revise Maturity Constraint The security sectors which are not currently accessible for the Districts' portfolio, due to the maturity constraint, are mortgage-backed securities (Section 8.2), collateralized mortgage obligations, and some asset-backed securities (Section 8.11). To resolve this situation, it is recommended that the Joint Boards of Directors revise or relax the stated maturity constraint in the Policy for the long-term portfolio. Section 53601, of the California Government Code (copy included in Attachment "B"), provides the Joint Boards with the discretion to revise the maturity constraint. Likewise, Section 12.2.1 of the Policy, permits the Joint Boards to authorize the proposed change. It should be noted that Government Code Section 53601 requires that at least three months pass between the time of the Joint Boards' approval of the revision to the maturity constraint for the long- term portfolio, and the time of the first purchase of securities with longer-dated maturities for the Districts' long-term portfolio. This "cooling-off period" is intended to prevent local agencies from routinely changing their policies in order to chase yield. The revised stated maturity constraint would be strictly limited to the long-term portfolio. With respect to purchases of securities, the revision would allow PIMCO to select only mortgage-backed securities and collateralized mortgage obligations backed by pools of mortgages guaranteed by the full faith and credit of the U.S. Government, or an agency thereof. Selection of mortgage derivatives, which include interest-only payments (IOs) and principal-only payments (POs); inverse floaters, and re-remics, will be prohibited. From a risk/return perspective, the ability of the Districts to control the portfolio's interest rate risk exposure remains essentially unchanged, as PIMCO must continue to actively manage the portfolio so that its duration stays within +/-20% of the benchmark duration constraint. In addition, the Policy's existing diversification and credit quality constraints remain unchanged. With regard to diversification for the security sectors discussed above, it is recommended that the diversification constraint in Section 11.11 be revised to include mortgage-backed securities in combination with collateralized mortgage obligations, and asset-backed securities under the 20% diversification limit for these security sectors. FAHR97-06 Page 4 January 15, 1997 In addition, the credit quality for the security sectors discussed above will continue to be as currently required in the Policy; that is, the full faith and credit of the U.S. Government for the mortgage- backed securities and collateralized mortgage obligations, and a "Aaa" or "AAA" rating for the asset- backed securities. Recommended Action This section presents a summary of the actions required for the Joint Boards of Directors to authorize a revision to the maturity constraint for the Districts' long-term portfolio. The first and second actions delete the existing five-year stated maturity constraint for the three security sectors, and establish specific selection and credit quality criteria. The third action establishes an overall diversification requirement for the three security sectors. The fourth action provides PIMCO with specific authorization to purchase mortgage-backed securities, collateralized mortgage obligations, and asset-backed securities as required by the Policy. The fifth action provides PIMCO with specific authorization to purchase individual securities for the Long Term Operating Monies portfolio which may have a stated maturity of more than five years, as required by the Policy. The table in Attachment "C" presents a comparison of existing and revised sections of the Policy. Staff recommends that pursuant to Section 16.1 of the Districts' Investment Policy, the Committee adopt a motion to recommend that the Joint Boards of Directors approve the following recommended actions. Pursuant to the requirements of California Government Code Section 53601, the Districts' external money managers may implement securities purchase authority no sooner than three months following the date of this Board action. 1. Revise Section 8.2 of the Districts' Investment Policy to read: "Mortgage-backed securities issued by an agency of the U.S. Government which are backed by pools of mortgages guaranteed by the full faith and credit of the U.S. Government, or an agency thereof. Selection of mortgage derivatives, which include interest-only payments (IOs) and principal-only payments (POs); inverse floaters, and re-remics, is hereby prohibited." FAHR97-06 Page 5 January 15, 1997 2. Revise Section 8.11 of the Districts' Investment Policy to read: "Collateralized mortgage obligations (CMOs) issued by agencies of the U.S. Government which are backed by pools of mortgages guaranteed by the full faith and credit of the U.S. Government, or an agency thereof, and asset-backed securities rated "Aaa" by Moody's and "AAA" by S&P. Selection of mortgage derivatives, which include interest-only payments (IOs) and principal-only payments (POs); inverse floaters, and re-remics, is hereby prohibited. Securities eligible for purchase under this Section 8.11 shall be issued by an issuer having a rating on its unsecured long-term debt of "A" or higher. Combined purchases of mortgage- backed securities, CMOs, and asset-backed securities, as authorized under this Section 8.11 may not exceed 20% of the total Long Term Operating Monies portfolio." 3. Revise Section 11.11 of the Districts' Investment Policy to read: "No more than 20% of the Long Term Operating Monies portfolio may be invested in a combination of mortgage-backed securities, CMOs, and asset-backed securities. Mortgage- backed securities, CMOs, and asset-backed securities may only be purchased by the Districts' external money managers with prior Board approval, and may not be purchased by the Districts' staff." 4. Authorize the Districts' external money managers to purchase mortgage-backed securities, CMOs, and asset-backed securities for the Long Term Operating Monies portfolio, pursuant to the requirements of Section 11.11 of the Districts' Investment Policy. 5. Authorize the Districts' external money managers to purchase individual securities, providing the securities are permitted under Section 8.0 of the Policy, which may have a final stated maturity of more than five (5) years from the date of their purchase, pursuant to the requirements of Section 12.2.1 of the Districts' Investment Policy. SK H:\WP.DTAIFIN\2210\CRANEIFPC.MTGIFAHR.97\MATURITY.DOC SA\ FRA\CISC0 \E~ )ORK CH!OG0 .-\.TU\TA DE\1-ER December 19, 1996 Mr. Steve Kozak County Sanitation Districts of Orange County 10844 Ellis A venue P.O. Box 8127 Fountain Valley, CA 92728-8127 RE: Investment Guidelines for the Long Term Operating Monies Dear Steve: Attachment "A" JU-TH.\\\ C \IOOWY. P!, D \ JCF PRE•IDC:\T Risk control is an important issue for the County Sanitation Districts of Orange County (CSDOC) in the investment of its operating funds. The District's current Investment Policy (IP) controls risk by imposing constraints of four types: diversification, duration, credit quality, and maturity. This letter provides a review of each type of risk control, and focuses on the implications for the Long Term Operating Fund. The analysis makes the case that the Districts should consider relaxing the constraint on stated maturity for the Long Term Operating Fund to enhance the objectives of the investment program. Risk Control The diversification guidelines in the IP accomplish three things for the portfolio: define permissible types of securities, constrain the maximum portion of the portfolio invested in each type, and limit the exposure to any single issuer to 5 percent, with the exception of securities guaranteed by the United States government. For example, diversification limits the combined allocation to asset- backed securities and collateralized mortgage obligations to 20 percent of the combined portfolio. The duration constraint in the IP controls the interest rate risk of the portfolio. Duration is a measure of the portfolio's sensitivity to changes in interest rates. If interest rates rise, the value of fixed income securities will fall. If the portfolio duration is 2.5, then the market value of the portfolio will rise (fall) by 2.5 percent for every 1 percentage point decline (or increase) in interest rates. The target duration for the portfolio is tied to a market benchmark, the Merrill 1 to 5 Year Government/Corporate Index. The portfolio manager is given latitude to vary the portfolio duration within +/-20 percent of the duration of the benchmark. 550 EAST 8TH .-\.\"£:\TE. DE\\"ER. COLOR-\DO 80203 TELEPHO\'E 303.861.1900 f..\CSl\l!LE 303.832.8230 Mr. Steve Kozak Page Two December 19, 1996 The credit quality constraint in the IP applies to corporate notes, and requires that corporate securities may only be purchased from companies whose long-term obligations are rated at least "a3" by Moody's or "A-" by the S&P. This constraint reduces the default risk in the portfolio, by eliminating lower credit quality securities. Although significant volumes of transactions take place in securities that fall below this credit standard, the impact of this constraint is not being fully analyzed at this time. The maturity constraint in the IP states that CSDOC is not to own any security with a stated maturity of longer than 5 years. This constraint is intended to reduce the risk that arises from holding longer maturity securities. In general, securities with longer maturities are riskier than those with shorter maturities because there is more interest rate risk in the longer maturity, other things being equal. Since other things are not always equal among securities, the duration of the security ( or of the portfolio itself) is a better measure of interest rate risk than is the stated maturity. For example, the expected maturity of a security may be very different than its stated maturity if the security contains prepayment ( or call) options. While stated maturity takes into account only the timing of the final payment, duration accounts for the timing and magnitude of all the cash flows over the life of the security. Overall, the stated maturity constraint is redundant because duration is sufficient as a risk control. In a few situations, the maturity constraint can be in conflict with the duration constraint if a security has acceptable duration but exceeds the acceptable stated maturity. The Districts' risk tolerance is communicated through the use of a benchmark which represents both portfolio characteristics and performance expectations. By using the Merrill 1 to 5 Year Government/Corporate Index as the benchmark for the Long Term Operating Fund, the Districts have established a duration target and performance expectations for the portfolio. Tools for Adding Value How does the manager add value? Managers have three tools for adding value to the portfolio: (1) through active management of duration within the guideline of +/-20 percent of the benchmark duration; (2) through yield curve placement which means achieving the desired duration by selecting securities from various positions along the yield curve; and (3) through security selection. Mr. Steve Kozak Page Three December 19, 1996 The IP restricts the use of these tools to reflect the Districts' risk tolerance. I believe that the IP may be inadvertently constraining the manager unnecessarily through the constraint on stated maturity. The stated maturity constraint affects both yield curve strategy and security selection. Yield Curve An active manager can achieve a targeted duration in the portfolio through a variety of ways. For example, a duration of 2 can be achieved by buying only securities with a duration of 2. Alternatively, the manager could invest half the assets in cash (duration of zero) and half in securities with a duration of 4. I should point out that duration is approximately additive. A longer maturity position can be offset by a short position elsewhere in the portfolio. The current guidelines prevent a 6-year or longer security from being purchased for such a strategy. The benefit from yield curve positioning is that total portfolio yield may be improved for a given duration by investing in bonds with a range of maturities. Security Selection. The current constraint on stated maturity makes it impossible for the manager to purchase mortgages and some asset-backed securities, despite the fact that the diversification guidelines provide for these types of securities. For these types of securities, stated maturity and expected maturity are likely to be very different, in part because mortgages return part of the principal with each payment date. For a given maturity, the duration of a self-amortizing mortgage is very different, and much less, than for a bond with repayment of the entire principal on the scheduled maturity date. Alternatives I see that CSDOC has three alternatives: 1. CSDOC may relax the stated maturity constraint and leave the duration guideline unchanged. The result is that the manager would be able to use some longer maturity securities, mortgages, and asset-backed securities. The interest rate risk would be essentially unchanged. If the Board pursues this alternative, it would be appropriate to provide specific Board approval for mortgage pass-throughs, CMOs, and asset-backed securities. The IP should also state a specific limit on the portion of the portfolio that may be invested in mortgages, as the current constraint only applies to CMOs. Mr. Steve Kozak Page Four December 19, 1996 2. CSDOC may relax the stated maturity constraint and increase the duration, moving toward a portfolio of intermediate maturity dated securities. This alternative was the topic of my November 13, 1996 presentation to the FAHR Committee. The reward is expected to be about 60 basis points of additional return, annually, over a full market cycle. This alternative does significantly alter the risk profile of the portfolio. The benchmark duration would increase from 2.3 to 3.3. This alternative should not be pursued simply to enhance the use of any individual sector of the market, rather only if the Districts' risk tolerance has increased. 3. CS DOC may take no action at this time. In fact, CS DOC may wish to continue the stated maturity constraint expressly to avoid mortgages. I recommend that the Committee should seriously consider the first alternative for the following reasons: • the interest rate risk would be essentially unchanged; • the manager would have a wider range of securities to select from resulting in improved diversification and enhanced opportunity for value added; • the manager would be able to position the portfolio more effectively along the yield curve; • the specific risks associated with mortgages can be managed by limiting the total allocation to mortgages to 30 percent of the Long Term fund. These benefits appear to offset the costs of having to amend the policy and obtain approval of the joint Boards. I would be happy to discuss this topic in greater detail. Yours truly, Ruthann C. Moomy, Ph.D. Vice President RCM:dsb Attachment "B" ~6Dl -Instruments authorized for investment The le!:!islative bodv of a local a2enc,· havin!:! monev in a sinkin2 fund of. or surplus money in .. its treasury n-ot r~quired -for the" immediate ~eces.5ities of the local agency may invest any portion of the money that it deems wise or expedient in those investments set forth below. A local agency purchasing or obtaining any securities prescribed in this section, in a negotiable, bearer, regi.r.tered. or 11011rcgistered format. shall require defi,.ery of the securirics ro the local agency, including those purchased for the agency by .financial ad1•i- sors. consul tams. or managers using the agency's funds, by book emry, physi- cal delfrery. or by third parry cusrodial agreement. The trans.fer of securities to the counterparty bank's customer book entry accoum may be used J or book cmry delfrcry. For purposes of this section •·counterparry'' means the other parry co the rransaction. A comzterparty bauk·s trust department or separate safekeeping department ma_v be used for the physical delivery of tlze securiry if tlze security is held in tlze name of the local agency. * * ,:, Where this section does not specify a limitation on che term or remaining maturity ac che time of the investment. qo,,uu,esimeru sha-ll made.im;.a-ny-~cul!~~Y :;,'(;)Ule ·hail~~ security underlying a repurchase or reverse repurchase agre:::menr authorized bv chis section, wt t.::dae--time rt> _ he -i-0-v.estmem-ii'las·-a"iermar;emaimn2fl0 •tiJy,in,.~cess-efiive~.cars. unless the legislarive body has gramed exp-..ess authority to make hat investment:ieither.specificatiy or as a part of an invest- ment . program .,app.r:m,ed'"4>~t be · fe:,i:rislati~.;bQc:ty rr~-less-ban:.rbr.ee.-311ont-hs p.dorto.;tbeinvestmenc: · (a) Bonds issued by the local agency. including bonds payable solely our of the revenues from a revenue-producing property owned. controlled. or oper- ated by the local agency or by a department. board. agency. or authnriry of the local agency. (b) Unired Scares Treasury notes. bonds. bills. or certificates of indebtedness. or those for which the faith and credit of che Unired Stares are pledged for the payment of principal and interest. (c) Regisrered state warrants or treasury notes or bonds of chis scare. includ- ing bonds payable solely out of the revenues from a revenue-producing property owned. controlJed. or operated by the state or by a deparcmenr. board. agency. or auchoricy of the srate. (d) Bonds. notes. warrants. or ocher evidences of indebtedness of any local agency within this state, including bonds payable solely out of the revenues from a revenue-producing property owned. controlled. or operated by the lo- cal agency, or by a department, board. agency. or authority of the local agency. (e) Obligations issued by banks for cooperatives, federal land banks. federal intermediate credit banks. federal home loan banks. the Federal Home Loan Bank Board, the Tennessee Valley Authority. or in obligations. participations. or ocher instruments of. or issued by. or fully guaranteed as co principal and interest by, the Federal National Mortgage ,:\ssociation: or in guaranteed por- tions of Small Business Administration notes: or in obligations. participations. or other instruments of. or issued by. a feder~,l agency or a United States government-sponsored en,terprise. (t) Bills of exchange or time drafts drawn on and accepted by a commercial bank. otherwise known as bankers acceptances. Purchases of bankers accep- tances may not exceed 270 days maturity or 40 percent of the agency"s surplus money that may be invested pursuant co this section. However. no more than 30 percent of the agency·s surplus funds may be invesred in the bankers ac- ceptances of any one commercial bank pursuant to this section. This subdivision does not preclude a municipal uriliry district from inv~cing any surplus money in its treasury in any manner ~,uchorized by the Municipal Utility District Act (Division o 1commc::ncing with Sc::c.:tion 1150 I l of the Public Urilities Code J. ' . Attachment 11C1' ~-JSEC "l)f; 8.2 8.11 11 .11 Mortgage-backed securities issued by an agency of the US Government, provided that the stated final maturity of such securities does not exceed five (5) years from the date of purchase. Collateralized mortgage obligations (CMOs) issued by agencies of the US Government with a maximum stated final maturity of five years and asset-backed securities rated "Aaa" by Moody's and "AAA" by S&P, with a maximum final stated maturity of five (5) years. Securities eligible for purchase under this Section 8.11 shall be issued by an issuer having a rating on its unsecured long-term debt of "A" or higher. Combined purchases of CMOs and asset-backed securities as authorized under this Section 8.11 may not exceed 20% of the total portfolio. No more than 20% of the portfolio may be invested in a combination of CMOs and asset- backed securities. CMOs and asset-backed securities may only be purchased by the Districts' external money managers with prior Board approval, and may not be purchased by the Districts' staff. H\. .. \FINANCE\221 0\KOZAK\MATURITY.DOC Mortgage-backed securities issued by an agency of the U.S. Government which ~re 'b~lfoke·d 6 ................................................... Y p§o~•P.t:m.ififgf.lg~~gi:J~r~h(e'~#!b.Y:tfig'ru'il:@'ffl.i. ~n.<f ~reijifpf:,,n.~ u:$.:••~rivetnm~nt/9.r~n•~Q'eoqy ihef~pt S.eJeq1fori:pf morlgag,fderivatiye~) ~PQ•~1J:¢ .. t.l~~•~filctt~~,~9fu&•P~Ym~ills•·(1p~)••~n~ ptlnl:itp~i~rllY P..~Yin~n.\~.(~Q~);!t6vet$.~•ijo.~je~*; ijn~ur~I~m1~t1i~li4;it¢.py·ptotit~it~a·. "Collateralized mortgage obligations (CMOs) issued by agencies of the U.S. Government Whit;ti)~reba¢.k~d?pyp:9c# bf m9r't:g'ag~~ guamnte_ed by1fi~ ttiltfiiiitti iind 9r~ql(Qftfie iji$. ~Qve.rriment QI: ~o ~geric:Yther-e.ot and asset- backed securities rated "Aaa" by Moody's and "AAA" by S&P. §~l~¢tjqi;ipfrri9rig~g~ ij;:J,v'afij~~~-W.fii?h'.,6.b\µ~~•rritefe~t-Qniy •p~yrn~bt~ (l()~):~ndpgn.gipa!~c:#iWpiiiyrnebtii(P~):l.irW~ri;e ffi>.~de~J~odre#r.emid$,••is•nei:Elby•pr9nihit~ij. Securities eligible for purchase under this Section 8.11 shall be issued by an issuer having a rating on its unsecured long-term debt of "A" or higher. Combined purchases of rnortg~g~ l:>~ck¢c:f ~Cl!r.ffie~, CMOs and asset-backed securities, as authorized under this Section 8.11, may not exceed 20% of the total (;;009 J'erm Qp~fa#n.g MPn!~$ portfolio. "No more than 20% of the LongT¢tm Ope.rating M~6i~~ portfolio may be invested in a combination of rj{qrjgijg~~a¢k~q~¢pyriti~$.. CM Os, and asset-backed securities. tMPrtiiijg~ baqk,¢4~9Ydti~s. CMOs, and asset-backed securities may only be purchased by the Districts' external money managers with prior Board approval, and may not be purchased by the Districts' staff." PDC: FAHR: 01/15/97 EXEC: STEER: JT.BDS:01/22/97 ALL AGENDA WORDING AND RECOMMENDED ACTION(S): Agenda Wording: AGEN .. ~ ITEM TRANSMITTAL CONTACT FOR INFORMATION 2210, Gary Streed, 2500 Division No., Name, and Extension PRELIMINARY DISCUSSION RE SEWER SERVICE FEES FOR 1997-98 (All Districts): Staff proposes to maintain current fee levels pending completion of the Strategic Plan. Recommended Action(s): 1. Consideration of staff proposal to maintain 1996-97 Sewer Service Fees for 1997-98. CEQA REVIEW: Project is Exempt: NOT APPLICABLE Date Notice of Exemption Filed: Negative Declaration Approved on Final EIR Approved on_ and Notice of Determination filed on_ CURRENT BUDGET/COST INFORMATION TOTAL BUDGETED AMT.: $62,151,00 SOURCE: CORF JO DISTRICTS Schedule/Line Items: AMOUNT OF TRANSFER: Schedule/Line Item: TOTAL PROJECT BUDGET INFORMATION First Year in Budget: Master Plan Estimate: Year of First Costs: THIS AITNENDOR/PROJECT COST INFORMATION CURRENT YEAR BUDGET AMOUNT $62,151,000 ORIGINAL BUDGET TOTAL ORIGINAL BID, PO, CONTRACT AMOUNT WILL PROJECT REQUIRE ADDITIONAL PERSONNEL? NO If YES, state number: _ Permanent _ Limited Term Revised 12/1196 H:\WP .OTA \FIN\221 O\CRANE\FPC.MTG\FAHR.97\FAHR97.07 DATE OF MOST RECENT BOARD ACTION ON THIS SPECIFIC ITEM: CURRENT YEAR- TO-DATE EXPENDITURES N/A PREVIOUS BUDGET CHANGES CHANGE ORDERS, FUNDS PREV. APPROVED YEAR-TO-DATE BUDGET BALANCE N/A BUDGET CHANGE THISAIT AMOUNT REQUESTED THIS AIT $0.00 REQUIRES BOARD POLICY ACTION? NO REVISED BUDGET TOTAL (Total Budget plus Transfers) $62,151,000 REVISED TOTAL PROJECT BUDGET $0.00 AMENDED PROJECT AMOUNT $0.00 If YES, explain in ADDITIONAL INFORMATION section Page 1 of2 CONCURRENCES: ATTACHMENTS TO ~.\NOA (List) To Committee: 1. Staff Report ToJt. Bds.: 1. Staff Report Signa~ Date Assistant General Manager (Or Designee) ADDITIONAL INFORMATION (Background and/or Summary) • The Directors' Steering Committee, made up of the Joint Chair and Vice Joint Chair, and the Chairs of each of the standing committees, is scheduled to meet Saturday, February 1, 1997, with the staff Executive Management T earn to develop budget assumptions and fiscal policies for the 1997-98 budget process. The results of that meeting will be brought to the FAHR Committee at your February 19, 1997 meeting. Staff is raising the basic issue of Sewer Service Fee level at this time so that the Steering Committee will have the benefit of the FAHR Committee's initial thoughts about maintaining Sewer Service Fee levels for this meeting. • The attached staff report contains additional background information for the Committee's review. GGS:lc c: Department Head A GM-Administration A GM-Operations General Manager Revised 12/1196 H:\WP.DTA\FIN\2210\CRANE\FPC.MTG\FAHR.97\FAHR97.07 Page 2 of2 January 15, 1997 STAFF REPORT FAHR97-07: Preliminary Consideration of 1997-98 Sewer Service Fees Background The Districts' most significant revenue source is Sewer Service Fees, sometimes called User Fees. For 1996-97, Sewer Service Fees are budgeted to be $62,151,000, out of a total revenue projection of $130,255,500. Each year, the Directors for each District examine the financial projections for their District and determine if fees or requirements need to be adjusted for the following year. For the past several years, fees have remained unchanged, while requirements and appropriated reserves have been adjusted. The last time Sewer Service Fees were changed was in an urgency action taken after the fees had already been adopted by the Directors for 1992-93. This action was necessary in order to replace the property tax revenues that were reallocated to the state by the legislature. (In 1992-93, the State Legislature authorized the transfer of up to 40% of special district and other local agency property tax allocations to the state. As our Sewer Service Fees were collected as a separate line item on the property tax bill, they had to be adjusted in September before the property tax bills were mailed.) Current single family residential (SFR) unit fees for each District are shown below. Fees for multi-family units are 60% of the SFR fee per unit and non-residential fees are 71.5% of the SFR fee per 1000 square feet of building. District Annual Fee 1 $83.24 2 71.52 3 73.89 5 96.75 6 76.47 7 50.09 11 60.00 13 100.00 14 Collected by the IRWD CSDOC e P.O. Box 8127 e Fountain Valley, CA 92728-8127 e (714) 962-2411 FAHR97-07 Page2 January 15, 1997 The 2020 Vision Financial Plan provides that 50% of the Districts' capital improvement program will be funded by borrowing, and that the borrowing will be repaid from property taxes and Sewer Service Fees. Since property tax allocations are fixed, future borrowing must be repaid by Sewer Service Fee increases. As a part of the 1996-97 Budget process, the Directors adopted a reduced capital improvement program in order to avoid borrowing. Even so, appropriated operating and capital reserves will decrease $29 million this fiscal year. Deferring new borrowing or issuing additional Certificates of Participation (COPs) has allowed the Directors to defer increasing Sewer Service Fees. In 1992, the Boards officially dedicated property tax revenues to the repayment of COPs. Since that time, COP interest and principal has increased, while property taxes have remained constant, as shown in the following graph. Service of additional borrowing will increase the shortfall of property taxes, and will require Sewer Service Fee increases. COP Funding Requirements vs. Property Tax Funding Source $40,000,000 ~-------------. $35,000,000 $30,000,000 $25,000,000 $20,000,000 $15,000,000 ---------·--------------· ----·-----------·----······-... , ', ... , _______ ---------+-----•---- /···············-·•-·-··•···-·················-·· $10,000,000 ------------+----! 91.92 92.93 9:>94 94-95 95-96 ~97 97-98 1---RopertyTaxes -aJPService I Staff is currently using a working assumption that the Joint Works capital improvement plan for 1997-98 will continue to be a reduced plan. Primary objectives of the plan will deal with plant automation, computerization and seismic reliability. Our initial goal is for plant improvements to total no more than $50 million for 1997-98. Significant investment in new construction should await the completion of the Strategic Plan. As the Directors are aware, one of the results of the Strategic Plan currently under review will be a revised capital improvement plan through the year 2020. Current estimates are that the new plan may be somewhat less ambitious than the 2020 Vision Plan, since influent flows have not ' ( FAHR97-07 Page 3 January 15, 1997 \ I increased as rapidly as projected, and since the political climate seems more likely to continue the current discharge requirements. Nonetheless, any significant investment in capital will require a user fee increase, since the Districts cannot borrow unless additional revenue is identified. One of the conditions of the Certificate of Participation (COP) borrowing done by the Districts is that revenues will cover current year expenditures. Staff has recently obtained an opinion from Bond Counsel that a special appropriation of accumulated reserves for debt service can be counted as current year revenues. This is good news for District No. 1, which has the lowest share of property tax revenue and Sewer Service Fees. The combination of a reduced capital improvement program, special appropriations of accumulated reserves and reduced operations and maintenance costs will enable the Districts to · go yet another year without a Sewer Service Fee increase or additional borrowing, should that be the Directors' decision. However, as noted previously, plans to borrow in 1998-99 will depend upon increased revenues and/or reduced expenses. Another requirement of the existing COPs is called an "additional bonds test." This requirement is satisfied only when current revenues, excluding reallocation of accumulated reserves, exceed current debt service expenses. The requirement for fixed rate, senior lien COPs is that revenues be 1.25 times debt service expenses. This requirement would be very difficult to meet without future Sewer Service Fee increases. The Directors' Steering Committee, made up of the Joint Chair and Vice Joint Chair, and the Chairs of each of the standing committees, is scheduled to meet Saturday, February 1, with the staff Executive Management T earn to develop budget assumptions and fiscal policies for the 1997-98 budget process. The results of that meeting will be brought to the FAHR Committee at your February 19, 1997 meeting. Staff is raising the basic issue of Sewer Service Fee level at this time so that the Steering Committee will have the benefit of the FAHR Committee's initial thoughts about maintaining Sewer Service Fee levels for their meeting. GGS:lc H:\WP.OTAIFIN\22101CRANE\FPCMTGIFAHR.97\STAFFRPT.97\SRFAHR97.07 January 15, 1997 "F.!;\IT;it[!TT l: ;:h: ,i;'':• ~~lliJJ!iLftE:;i!i Information Action Action Action . iit.:i''ii! I" .. 'i/i;J:jl Consideration of Second Quarter Budget and Performance Review Information ,.,--'_ ;;;:;~4~ Consideration of Future Staffing Levels :illliJ:/=:::!:ii:::-":Li; Information Information Action Information _ _ Ji:~ Consideration of Fiscal Year 97-98 Districts-wide Training Program Information ••• 1. ,·0:sfi."°'···,1 mnn 1· 'l: .i. it~tfHt;:JHi~}f-------------------------------------1• ·' : csc="i,t' " 11 < 1!!1;,,• Consideration of Report on Integrated Emergency Response Plan Information fi~:;: )1· ... ,,.;iiH~~h: ~U[~!~!i~:~ )ijf~:~~/t,;~J:::l; Consideration of 1997-98 User Fees, Connection Fees, Annexation Fees Action :::!,;:.::::: · ... " · . !!;[~;!~ Consideration of Results of Broadbanding Study Information I~12 ;ji~ll~,-~::;)ft,------------------------------------• 1 • ll :~-f":"'ilt' Consideration of Revised "Reserve" Policy i . 1~ ·1~~---~~:~;;;L::lli/ I:: " " 5~:; ;mLi1~li?:!"'"c_o_n_s_i_d_e-ra-t-io_n_o_f_F_o_rm_a_t_io_n_o_f _F_in_a_n_c-in_g_T_e_a_m_fo_r_1_9_9_7 ___ 9_8 __________ A_c_ti_o_n_11 ;;,= iJ t~--i;\: kn Information H:\WP .DTA\FIN\221 0\CRANE\FPC.MTG\FAHR.97\CAL01.97